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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 2000
COMMISSION FILE NUMBER 000-24971
CONTANGO OIL & GAS COMPANY
(Exact name of small business issuer as specified in its charter)
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NEVADA 95-4079863
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
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3700 BUFFALO SPEEDWAY, SUITE 960
HOUSTON, TEXAS 77098
(Address of principal executive offices)
(713) 960-1901
(Issuer's telephone number)
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.04
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
Revenues from operations for the fiscal year ended June 30, 2000 were
$298,339.
The aggregate market value of the voting common stock held by
non-affiliates based on the closing price at September 21, 2000, was
$24,839,417. As of September 11, 2000, there were 22,920,415 shares of the
issuer's common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Items 9, 10, 11 and 12 of Part III have been omitted from this report since
registrant will file with the Securities and Exchange Commission, not later than
120 days after the close of its fiscal year, a definitive proxy statement,
pursuant to Regulation 14A. The information required by Items 9, 10, 11 and 12
of this report, which will appear in the definitive proxy statement, is
incorporated by reference into this Form 10-KSB.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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CONTANGO OIL & GAS COMPANY
ANNUAL REPORT ON FORM 10-KSB
FOR THE FISCAL ENDED JUNE 30, 2000
TABLE OF CONTENTS
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PART I
Item 1. Business
Contango........................................ 1
Plan of Operations.............................. 1
Business Strategy............................... 2
Natural Gas and Oil Prices...................... 3
Competition..................................... 4
Governmental Regulations........................ 4
Environmental Regulations....................... 6
Employees....................................... 8
Directors and Executive Officers................ 8
Corporate Offices............................... 9
Risk Factors.................................... 10
Item 2. Description of Properties
General......................................... 15
Production, Prices and Operating Expenses....... 15
Development, Exploration and Acquisition Capital
Expenditures.................................... 16
Drilling Activity............................... 16
Exploration and Development Acreage............. 17
Productive Wells................................ 17
Natural Gas and Oil Reserves.................... 17
Item 3. Legal Proceedings.................................. 18
Item 4. Submission of Matters to a Vote of Security
Holders............................................ 18
PART II
Item 5. Market for Common Equity and Related Stockholder
Matters............................................ 19
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations
General......................................... 21
Results of Operations........................... 21
Capital Resources and Liquidity................. 22
Item 7. Financial Statements and Supplementary Data........ 23
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............... 23
PART III
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section 16(a) of
the Exchange Act................................... 23
Item 10. Executive Compensation............................. 23
Item 11. Security Ownership of Certain Beneficial Owners and
Management......................................... 24
Item 12. Certain Relationships and Related Transactions..... 24
Item 13. Exhibits and Reports on Form 8-K................... 24
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CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS
Some of the statements made in this Form 10-KSB may contain
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. The words and phrases "should be," "will be," "believe," "expect,"
"anticipate," "estimate," "forecast," "goal" and similar expressions identify
forward-looking statements and express our expectations about future events.
These include such matters as:
- Our financial position
- Business strategy and budgets
- Anticipated capital expenditures
- Drilling of wells
- Natural gas and oil reserves
- Timing and amount of future production of natural gas and oil
- Operating costs and other expenses
- Cash flow and anticipated liquidity
- Prospect development and property acquisitions
Although we believe the expectations reflected in such forward-looking
statements are reasonable, we cannot assure you that such expectations will
occur. These forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, performance
or achievements to be materially different from actual future results expressed
or implied by the forward-looking statements. These factors include among
others:
- The risks associated with exploration
- Ability to raise capital to fund capital expenditures
- The ability to find, acquire, market, develop and produce new properties
- Natural gas and oil price volatility
- Uncertainties in the estimation of proved reserves and in the projection
of future rates of production and timing of development expenditures
- Operating hazards attendant to the natural gas and oil business
- Downhole drilling and completion risks that are generally not recoverable
from third parties or insurance
- Potential mechanical failure or under-performance of significant wells
- Climatic conditions
- Availability and cost of material and equipment
- Delays in anticipated start-up dates
- Actions or inactions of third-party operators of the Company's properties
- The ability to find and retain skilled personnel
- Availability of capital
- The strength and financial resources of competitors
- Regulatory developments
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- Environmental risks
- General economic conditions
When you consider these forward-looking statements, you should keep in mind
these risk factors and the other cautionary statements in this Form 10-KSB. You
should not unduly rely on these forward-looking statements in this report, as
they speak only as of the date of this report. Except as required by law, we are
not obligated to publicly release any revisions to these forward-looking
statements to reflect events or circumstances occurring after the date of this
report or to reflect the occurrence of unanticipated events. See the information
under the heading "Risk Factors" on page 10 for some of the important factors
that could affect our financial performance or could cause actual results to
differ materially from estimates contained in forward-looking statements.
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All references in this Form 10-KSB to the "Company," "Contango," "we," "us"
or "our" are to Contango Oil & Gas Company. Unless otherwise noted, all
information in this Form 10-KSB relating to natural gas and oil reserves and the
estimated future net cash flows attributable to those reserves are based on
estimates prepared by independent engineers and are net to our interest.
PART I
ITEM 1. BUSINESS
CONTANGO
Contango is a development stage, independent natural gas and oil company
engaged in the exploration, development and acquisition of natural gas and oil
properties in the United States. Our entry into the natural gas and oil business
began on July 1, 1999, and we reported our first revenues from operations during
the fiscal year ended June 30, 2000. At year-end June 30, 2000, we had proved
reserves of approximately 3.5 billion cubic feet of natural gas equivalents,
consisting of approximately 2.7 billion cubic feet of natural gas and 137,000
barrels of oil and condensate, with a pre-tax present value discounted at 10%
per annum of approximately $12.3 million.
Contango was incorporated as a Nevada corporation in August 1986 under the
name of Maple Enterprises, Inc. In 1988, Maple acquired and subsequently merged
into Warner Technologies, Inc., a private corporation. At the 1998 annual
stockholders' meeting, Warner stockholders approved an agreement to sell the
operating business and substantially all operating assets, effective as of
December 31, 1997. At that time, stockholders also voted to change the name of
the company from Warner Technologies, Inc. to MGPX Ventures, Inc. As a result of
the sale of assets, MGPX became a "shell" corporation with no operations or
business plan other than to seek to identify and complete a transaction that
would enhance stockholder value. After reviewing numerous business
opportunities, the board of directors unanimously approved a plan for MGPX to
hire new management and to enter the natural gas and oil business. Accordingly,
in July 1999, the board appointed Kenneth R. Peak as president, chief executive
officer, chief financial officer, secretary and director of the company. At the
annual stockholders' meeting held on September 28, 1999, our stockholders voted
to change the name of the company from MGPX Ventures, Inc. to Contango Oil & Gas
Company, elected a new board of directors including Kenneth R. Peak, our
president, chief executive officer and chairman of the board. We also changed
our trading symbol on the Nasdaq over-the-counter bulletin board from "MGPX" to
"BTUX".
PLAN OF OPERATIONS
We had no operations and generated no revenues during the fiscal year ended
June 30, 1999. We began operations as a natural gas and oil exploration and
development company on July 1, 1999 and generated our first natural gas and oil
revenues during the fiscal year ended June 30, 2000. Our ability to develop and
maintain a meaningful level of revenues from operations is dependent on our
ability to successfully drill exploration and development wells and complete
producing property acquisitions.
Our exploration efforts currently are focused offshore on the continental
shelf of the Gulf of Mexico and the onshore Gulf coast region. Our current
onshore activities are concentrated in a five county Texas area including
Wharton, Colorado, Ft. Bend, Jim Hogg and Brooks counties. In addition, we
continue to target selected, negotiated acquisitions of proved properties. At
June 30, 2000, we had working interests in 19 gross producing wells (1.27 net).
You should read the discussion under the heading "Description of Properties" for
further information about our properties and drilling activities and the
discussion under "Liquidity" under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for information about
our anticipated capital requirements during the next 12 months.
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BUSINESS STRATEGY
Our goal is to achieve and maintain profitability and create value for our
stockholders through natural gas and oil exploration and development and the
acquisition of proved properties. Our strategy to achieve our goal includes:
- Funding exploration prospects developed by talented geoscientists
- Negotiated acquisitions of proved properties
- Strict control of general and administrative and geological and
geophysical costs
- Using creative deal structures to access acreage, seismic, prospects and
capital
- Using equity ownership incentives to align the interests of our
management and our alliance partners with that of our stockholders
- Investing in other energy industry entrepreneurial opportunities
Our principal focus is on the funding and drilling of exploratory wells
onshore in the Gulf coast area and in the Gulf of Mexico, offshore Texas and
Louisiana in water depths of less than 300 feet. Our strategy is to control
overhead costs by keeping employee levels low and outsourcing geological,
geophysical, engineering, land and operating activities and as much of our
administrative activities as possible. In particular, we have outsourced all of
our natural gas and oil prospect generation and evaluation functions to our
alliance partner, Juneau Exploration Company, L.L.C. More recently in August
2000, Contango, Juneau Exploration and an industry partner formed Republic
Exploration, L.L.C. to generate and explore prospects using reprocessed 3-D
seismic. Juneau Exploration is the managing member, and Contango currently is a
10% owner in Republic Exploration. We expect to exercise our option to acquire
an additional 23.3% interest prior to the option's expiration on December 29,
2000.
Natural gas and oil exploration is an exceptionally high risk business that
requires significant outlays of capital. Our goal is to enhance our chances for
success by using 3-D seismic technology, keeping our cost structure low and
managing financial risk. Juneau Exploration has access to a large database of
3-D seismic and has significant experience in processing, interpreting and
drilling wells based on 3-D seismic data.
In addition to exploration activities, we intend to target negotiated
acquisitions and thereby avoid more competitive bidding situations. Nonetheless,
we will always face competition from companies that in many instances are well
established, successful and frequently may be willing to pay more for properties
than what we might consider prudent. Thus, our success will depend on our
ability to quickly identify promising opportunities, prioritize these
opportunities to focus on situations where we have the most potential for
success, and then negotiate creative deal structures that, whenever possible,
avoid the payment of more up-front cash than competitors are willing to pay.
Juneau Exploration Company, L.L.C. Effective September 1, 1999, we entered
into an agreement with Juneau Exploration whereby we outsourced all of our
natural gas and oil prospect generation and evaluation functions to Juneau
Exploration. As an inducement to enter into the agreement, Juneau Exploration
received 400,000 shares of our common stock. As of September 19, 2000, we have
granted to Juneau Exploration options to purchase 700,000 shares of our common
stock in connection with exploratory successes and acquisitions. Of these
options, 299,998 have vested, with the remainder vesting subject to achieving a
defined payout and rate of return.
On August 14, 2000, we amended our agreement with Juneau Exploration
whereby in exchange for our no longer granting 100,000 share options for each
acquisition and exploration success, we increased the overriding royalty
interest granted to Juneau Exploration from 2.5% to 3.3%. Juneau Exploration
currently receives a 3.3% proportionally reduced overriding royalty on
successful wells and a 25% proportionately reduced back-in working interest
after achieving a defined payout. Juneau Exploration will continue to bear the
upfront overhead costs of performing all functions involved in bringing a
prospect to a ready to drill stage.
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Juneau Exploration is required to participate for a 5% working interest in each
transaction recommended. Their overall remuneration continues to be directly
related to our exploration success, as the overriding royalty and 25% after
payout back-in working interest are tied to the drilling and performance of
successful wells. We believe this shifting of risk and alignment of incentives
are key to our goal of achieving profitability. John B. Juneau, one of our
directors, is the sole manager of Juneau Exploration.
Onshore Gulf Coast. Our onshore exploration activities currently are
focused in the Texas Gulf coast in Wharton, Colorado, Ft. Bend, Jim Hogg and
Brooks counties. During the year ended June 30, 2000, we drilled 8 gross
exploratory wells (1.70 net), of which 2 gross wells (0.86 net) were successful,
and we completed four property acquisitions. We currently have an active two-rig
exploration drilling program that we expect to continue for the next several
months contingent upon continuing exploration success. At September 21, 2000,
our net production from our onshore Texas Gulf coast exploration activities was
approximately 5.7 million cubic feet of natural gas and 240 barrels of oil per
day.
Offshore Gulf of Mexico. Our focus offshore is in the Gulf of Mexico,
offshore Texas and Louisiana, in water depths of less than 300 feet. We have
participated in the drilling of Eugene Island 28, a successful oil/gas discovery
in federal waters offshore Louisiana, and Brazos 436, a successful gas discovery
in federal waters offshore Texas. At September 21, 2000, our net production from
the Gulf of Mexico was approximately 500 thousand cubic feet of natural gas and
50 barrels of oil per day.
Republic Exploration, L.L.C. In August 2000, we purchased a 10% interest in
Republic Exploration for $4.0 million with the option to purchase another 23.3%
interest for an additional $2.5 million. The option expires December 29, 2000
and, if exercised, would result in our paying a total of $6.5 million for a
33.3% interest in Republic Exploration. Republic Exploration has the license
rights to existing and newly reprocessed 3-D seismic covering over 8,600 square
miles of the shallow waters of the Gulf of Mexico continental shelf. Republic
Exploration was formed to evaluate, generate, acquire and explore prospects
using this seismic data. The other two members of Republic Exploration are
Juneau Exploration, the managing member of Republic Exploration, and a privately
held company. Both companies have extensive experience in Gulf of Mexico
exploration. As part of this transaction, we granted five-year warrants to each
company to purchase 125,000 shares of Contango common stock at $1.00 per share.
Southern Ute Indian Tribe. In June 2000, the Southern Ute Indian Tribe
doing business as Red Willow Production Company entered into a two-year
Participation Agreement whereby Red Willow will have the right to acquire on the
same terms as Contango an 18.75% interest in all of our natural gas and oil
exploration and development projects and proved property acquisitions. The
Southern Ute Indian Tribe is a major producer and transporter of coal bed
methane. Through June 30, 2000, Red Willow has invested approximately $481,000
in our exploration programs. In June 2000, the Southern Ute Indian Tribe Growth
Fund purchased 2,500,000 shares of Contango's common stock for $1.00 per share.
In August 2000, the Southern Ute Indian Tribe Growth Fund exercised an option to
purchase an additional 2,500,000 shares of common stock for $1.00 per share,
bringing the Southern Ute Indian Tribe Growth Fund's ownership in Contango to
5,000,000 shares.
NATURAL GAS AND OIL PRICES
Substantially all of our production is sold under various terms and
arrangements at prevailing market prices. Our revenues, profitability and future
growth depend on natural gas and oil prices, thus price decreases would
adversely affect the value of our proved reserves, revenues and profits.
Historically, the prices received for natural gas and oil have fluctuated
widely. Among the factors that can cause these fluctuations are:
- The domestic and foreign supply of natural gas and oil
- The price of foreign imports
- The level of consumer product demand
- Weather conditions
- Political conditions in natural gas and oil producing regions
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- Overall economic conditions
- Domestic and foreign governmental regulations
- The price and availability of alternative fuels
- Potential price controls
Contango has no hedging arrangements at present. In the future, however, we
may enter into hedging arrangements to reduce our exposure to fluctuations in
the prices of natural gas and oil. Hedging arrangements expose us to risk of
financial loss in some circumstances including circumstances where:
- Production is less than expected
- There is a change in the expected differential between the underlying
price in the hedging agreement and actual prices received
- The other party to the hedging contract defaults on its contract
obligations
In addition, hedging arrangements may limit the benefit we would receive
from increases in the prices for natural gas and oil. We cannot assure you that
the hedging transactions we may enter into will adequately protect us from
fluctuations in the prices of natural gas and oil. On the other hand, we may
choose not to engage in hedging transactions in the future. As a result, we may
be more adversely affected by changes in natural gas and oil prices than our
competitors who engage in hedging transactions.
COMPETITION
We compete with a broad range of natural gas and oil companies in our
exploration and property acquisition activities. Many of our competitors have
substantially greater financial and other resources. In addition, our larger
competitors may be able to absorb the burden of changes in federal, state and
local laws and regulations more easily than we can, which could adversely affect
our competitive position. Many of our competitors will also be able to pay more
for exploratory prospects and productive natural gas and oil properties and will
be able to identify, evaluate, bid for and purchase a greater number of
properties and prospects than we can. In addition, most of our competitors have
been operating for a much longer time than we have and have demonstrated the
ability to operate through industry cycles. Our competitors may also have
greater access to equipment and materials than we have, which could adversely
affect our day-to-day operations.
We just have completed our first year of operation as a natural gas and oil
exploration and development company. Our ability to explore for natural gas and
oil and to acquire proved properties in the future will depend upon our ability
to evaluate and select suitable prospects and properties and to consummate
transactions in this highly competitive environment. We are also dependent upon
the ability of Juneau Exploration, our alliance partner, to identify prospects
and secure leases in the current competitive environment.
GOVERNMENTAL REGULATIONS
Federal Regulation of Sales and Transportation of Natural Gas.
Historically, the transportation and sale for resale of natural gas in
interstate commerce have been regulated pursuant to the Natural Gas Act of 1938,
the Natural Gas Policy Act of 1978 and the regulations promulgated thereunder by
the Federal Energy Regulatory Commission. In the past, the federal government
has regulated the prices at which natural gas could be sold. Deregulation of
natural gas sales by producers began with the enactment of the Natural Gas
Policy Act. In 1989, Congress enacted the Natural Gas Wellhead Decontrol Act,
which removed all remaining Natural Gas Act and Natural Gas Policy Act price and
non-price controls affecting producer sales of natural gas effective January 1,
1993. Congress could, however, reenact price controls in the future.
Our sales of natural gas are affected by the availability, terms and cost
of pipeline transportation. The price and terms for access to pipeline
transportation remain subject to extensive federal regulation.
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Commencing in April 1992, the Federal Energy Regulatory Commission issued Order
No. 636 and a series of related orders, which required interstate pipelines to
provide open-access transportation on a basis that is equal for all natural gas
suppliers. The Federal Energy Regulatory Commission has stated that it intends
for Order No. 636 to foster increased competition within all phases of the
natural gas industry. Although Order No. 636 does not directly regulate our
production and marketing activities, it does affect how buyers and sellers gain
access to the necessary transportation facilities and how we and our competitors
sell natural gas in the marketplace. The courts have largely affirmed the
significant features of Order No. 636 and the numerous related orders pertaining
to individual pipelines, although some appeals remain pending and the Federal
Energy Regulatory Commission continues to review and modify its regulations
regarding the transportation of natural gas. For example, in February 2000, the
Federal Energy Regulatory Commission concluded a broad review of its
transportation regulations by revising its regulations in Order No. 637 (and
subsequent, related orders), with the goal of improving competition in the
interstate transportation markets and to remove a perceived bias in existing
policies toward encouraging short-term transportation arrangements. Order No.
637 eliminates (for a two-year period) rate caps in the secondary market for
transportation arrangements of less than one year's duration. Order No. 637 also
requires pipelines to provide greater comparability of service between secondary
market sales and pipeline sales, requires pipelines to increase the rights and
options of transportation customers, requires expanded reporting requirements
regarding (among other information) interstate capacity and its utilization, and
imposes other regulatory changes. In addition, Order No. 637 permits, but does
not require, pipelines to file new types of rates, including differing rates for
peak and off-peak periods, term-differentiated rates, and rates established by
voluntary auctions -- although the Order does not depart from current policies
as to cost-based rates for long-term or pipeline-provided transportation
services. The Federal Energy Regulatory Commission has also commenced a
proceeding characterized as a "dialogue" with the industry on the potential for
more fundamental changes in its ratemaking policies, but has not yet proposed
any specific further changes. We cannot predict what action the Federal Energy
Regulatory Commission will take on these matters, nor can we accurately predict
whether the Federal Energy Regulatory Commission's actions will achieve the goal
of increasing competition in markets in which our natural gas is sold. However,
we do not believe that any action taken will affect us in a way that materially
differs from the way it affects other natural gas producers, gatherers and
marketers.
The Outer Continental Shelf Lands Act requires that all pipelines operating
on or across the Outer Continental Shelf provide open-access and
non-discriminatory service. In 1988, the Federal Energy Regulatory Commission
opted not to impose on gatherers and other non-jurisdictional entities the
regulations of Order No. 509, in which the Federal Energy Regulatory Commission
implemented the Outer Continental Shelf Lands Act as to pipelines subject to the
Natural Gas Act. However, in April 2000, the Federal Energy Regulatory
Commission issued Order No. 639, pursuant to its authority to permit
non-discriminatory access to service on the Outer Continental Shelf. Order No.
639 requires previously unregulated gas transportation providers on the Outer
Continental Shelf to make available information regarding their affiliations and
the conditions under which service is rendered, We do not believe that we will
be affected by the Federal Energy Regulatory Commission's revised policy
regarding transportation on the Outer Continental Shelf any differently than
other natural gas producers, gatherers and marketers.
Commencing in May 1994, the Federal Energy Regulatory Commission issued a
series of orders that, among other matters, slightly narrowed its statutory
tests for establishing gathering status and reaffirmed that, except in
situations in which the gatherer acts in concert with an interstate pipeline
affiliate to frustrate the Federal Energy Regulatory Commission's transportation
policies, it does not have pervasive jurisdiction over natural gas gathering
facilities and services and that such facilities and services located in state
jurisdictions are most properly regulated by state authorities. This Federal
Energy Regulatory Commission action may further encourage regulatory scrutiny of
natural gas gathering by state agencies. We do not believe that we will be
affected by the Federal Energy Regulatory Commission's gathering policy any
differently than other natural gas producers, gatherers and marketers.
Additional proposals and proceedings that might affect the natural gas
industry are pending before Congress, the Federal Energy Regulatory Commission
and the courts. The natural gas industry historically has
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been very heavily regulated; therefore, we cannot assure you that the less
stringent regulatory approach recently pursued by the Federal Energy Regulatory
Commission and Congress will continue.
Federal Leases. We have and expect in the future to have operations located
on federal natural gas and oil leases, which are administered by the Minerals
Management Service. Such leases are issued through competitive bidding, contain
relatively standardized terms and require compliance with detailed Minerals
Management Service regulations and orders pursuant to the Outer Continental
Shelf Lands Act, which are subject to interpretation and change by the Minerals
Management Service. For offshore operations, lessees must obtain Minerals
Management Service approval for exploration plans and development and production
plans prior to the commencement of such operations. In addition to permits
required from other agencies such as the Coast Guard, the Army Corps of
Engineers and the Environmental Protection Agency, lessees must obtain a permit
from the Minerals Management Service prior to the commencement of drilling. The
Minerals Management Service has promulgated regulations requiring offshore
production facilities located on the Outer Continental Shelf to meet stringent
engineering and construction specifications. The Minerals Management Service
also has regulations restricting the flaring or venting of natural gas and has
proposed to amend such regulations to prohibit the flaring of liquid
hydrocarbons and oil without prior authorization. Similarly, the Minerals
Management Service has promulgated other regulations governing the plugging and
abandonment of wells located offshore and the installation and removal of all
production facilities. To cover the various obligations of lessees on the Outer
Continental Shelf, the Minerals Management Service generally requires that
lessees have substantial net worth or post bonds or other acceptable assurances
that such obligations will be met. The cost of these bonds or other surety can
be substantial, and we cannot assure you that we will be able to obtain bonds or
other surety in all cases.
In March 2000, the Minerals Management Service amended its regulations
governing the calculation of royalties and the valuation of crude oil produced
from federal leases. This rule modifies the valuation procedures for both arm's
length and non-arm's length crude oil transactions to decrease reliance on oil
posted prices and assigns a value to crude oil that better reflects its market
value. We cannot predict how this regulation will affect us.
State and Local Regulation of Drilling and Production. We expect in the
future to own interests in properties located in the state waters of the Gulf of
Mexico offshore Texas, Louisiana, Mississippi and Alabama. These states regulate
drilling and operating activities by requiring, among other things, drilling
permits and bonds and reports concerning operations. The laws of these states
also govern a number of environmental and conservation matters, including the
handling and disposing of waste materials, unitization and pooling of natural
gas and oil properties and establishment of maximum rates of production from
natural gas and oil wells. Some states prorate production to the market demand
for natural gas and oil.
Oil Price Controls and Transportation Rates. Our sales of crude oil,
condensate and natural gas liquids currently are not regulated and are made at
market prices. Effective as of January 1, 1995, the Federal Energy Regulatory
Commission implemented regulations establishing an indexing system for
transportation rates for oil that could increase the cost of transporting oil to
the purchaser. In July 2000, the Federal Energy Regulatory Commission commenced
a proceeding to determine whether to change the index, but initially proposing
to retain the existing index. Other factors being equal, the indexing system,
and any orders amending the index, may tend to increase transportation costs or
reduce wellhead prices for crude oil. However, we do not believe that these
regulations affect us any differently than other natural gas producers,
gatherers and marketers.
ENVIRONMENTAL REGULATIONS
Our operations are subject to numerous laws and regulations governing the
discharge of materials into the environment or otherwise relating to
environmental protection. Public interest in the protection of the environment
has increased dramatically in recent years. Offshore drilling in some areas has
been opposed by environmental groups and, in some areas, has been restricted or
eliminated. To the extent laws are enacted or other governmental action is taken
that prohibits or restricts offshore drilling or imposes environmental
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protection requirements that result in increased costs to the natural gas and
oil industry in general and the offshore drilling industry in particular, our
business and activities could be adversely affected.
The Oil Pollution Act of 1990 and regulations thereunder impose a variety
of regulations on "responsible parties" related to the prevention of oil spills
and liability for damages resulting from such spills in United States waters. A
"responsible party" includes the owner or operator of a facility or vessel, or
the lessee or permittee of the area in which an offshore facility is located.
The Oil Pollution Act assigns liability to each responsible party for oil
removal costs and a variety of public and private damages. While liability
limits apply in some circumstances, a party cannot take advantage of liability
limits if the spill was caused by gross negligence or willful misconduct or
resulted from violation of a federal safety, construction or operating
regulation. If the party fails to report a spill or fails to cooperate fully in
the cleanup, liability limits likewise do not apply. Even if applicable, the
liability limits for offshore facilities require the responsible party to pay
all removal costs, plus up to $75 million in other damages. Few defenses exist
to the liability imposed by the Oil Pollution Act.
The Oil Pollution Act also requires a responsible party to submit proof of
its financial responsibility to cover environmental cleanup and restoration
costs that could be incurred in connection with an oil spill. As amended by the
Coast Guard Authorization Act of 1996, the Oil Pollution Act requires parties
responsible for offshore facilities to provide financial assurance in the amount
of $35 million to cover potential Oil Pollution Act liabilities. This amount can
be increased up to $150 million if a study by the Minerals Management Service
indicates that an amount higher than $35 million should be required. On August
11, 1998, the Minerals Management Service adopted a rule implementing these Oil
Pollution Act financial responsibility requirements.
The Oil Pollution Act also imposes other requirements, such as the
preparation of an oil spill contingency plan. We also are subject to regulation
of the Clean Water Act and similar state laws. The Clean Water Act prohibits any
discharge into waters of the United States except in strict conformance with
permits issued by federal and state agencies. Failure to comply with the ongoing
requirements of these laws or inadequate cooperation during a spill event may
subject a responsible party to civil or criminal enforcement actions.
In addition, the Outer Continental Shelf Lands Act authorizes regulations
relating to safety and environmental protection applicable to lessees and
permittees operating on the Outer Continental Shelf. Specific design and
operational standards may apply to Outer Continental Shelf vessels, rigs,
platforms, vehicles and structures. Violations of lease conditions or
regulations issued pursuant to the Outer Continental Shelf Lands Act can result
in substantial civil and criminal penalties, as well as potential court
injunctions curtailing operations and the cancellation of leases. Such
enforcement liabilities can result from either governmental or private
prosecution.
The Comprehensive Environmental Response, Compensation, and Liability Act,
also known as the "Superfund" law, imposes liability, without regard to fault or
the legality of the original conduct, on some classes of persons that are
considered to have contributed to the release of a "hazardous substance" into
the environment. These persons include the owner or operator of the disposal
site or sites where the release occurred and companies that disposed or arranged
for the disposal of the hazardous substances found at the site. Persons who are
or were responsible for releases of hazardous substances under the Superfund law
may be subject to joint and several liability for the costs of cleaning up the
hazardous substances that have been released into the environment and for
damages to natural resources, and it is not uncommon for neighboring landowners
and other third parties to file claims for personal injury and property damage
allegedly caused by the hazardous substances released into the environment.
Our operations are also subject to regulation of air emissions under the
Clean Air Act, comparable state and local requirements and the Outer Continental
Shelf Lands Act. Implementation of these laws could lead to the gradual
imposition of new air pollution control requirements on our operations.
Therefore, we may incur capital expenditures in the future to upgrade air
pollution control equipment. We do not believe that our operations would be
materially affected by any such requirements, nor do we expect such requirements
to be any more burdensome to us than to other companies our size involved in
natural gas and oil exploration and production activities.
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<PAGE> 12
In addition, legislation has been proposed in Congress from time to time
that would reclassify some natural gas and oil exploration and production wastes
as "hazardous wastes," which would make the reclassified wastes subject to much
more stringent handling, disposal and clean-up requirements. If Congress were to
enact this legislation, it could increase our operating costs, as well as those
of the natural gas and oil industry in general. Initiatives to further regulate
the disposal of natural gas and oil wastes are also pending in some states, and
these various initiatives could have a similar impact on us. We believes that we
are in substantial compliance with current applicable environmental laws and
regulations and that continued compliance with existing requirements will not
have a material adverse impact on us.
In accordance with industry practice, we maintain insurance against some,
but not all, potential risks and losses. We do not carry business interruption
insurance. For some risks, we may not obtain insurance if we believe the cost of
available insurance is excessive relative to the risks presented. In addition,
pollution and environmental risks generally are not fully insurable. If a
significant accident or other event occurs and is not fully covered by
insurance, it adversely could affect us.
EMPLOYEES
At June 30, 2000, we had a total of three employees, all of whom were full
time. We use the services of independent consultants and contractors to perform
various professional services, including reservoir engineering, legal,
environmental and accounting. We are dependent on our alliance partner, Juneau
Exploration, in the areas of geological and geophysical services and prospect
generation, evaluation and prospect leasing. In addition, as a working interest
owner in drilling wells and producing properties, we rely on operators and also
utilize the services of independent contractors to perform field and on-site
drilling and production operation services.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names, ages and positions of our
directors and executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Kenneth R. Peak........................... 55 Chairman, President, Chief Executive
Officer, Chief Financial Officer, Secretary
and Director
William H. Gibbons........................ 57 Treasurer
John B. Juneau............................ 40 Director
Joseph J. Romano.......................... 47 Director
Darrell W. Williams....................... 57 Director
Robert J. Zahradnik....................... 47 Director
</TABLE>
Kenneth R. Peak was appointed president, chief executive and financial
officer, secretary and a director of Contango in July 1999. Before joining
Contango, Mr. Peak was the president of Peak Enernomics, Incorporated, a natural
gas and oil consulting firm that he formed in 1990. Mr. Peak began his energy
career in 1973 as a commercial banker in First National Bank of Chicago's energy
group. He became treasurer of Tosco Corporation in 1980 and chief financial
officer of Texas International Company ("TIC") in 1982. His tenure with TIC
included serving as president of TIPCO, the domestic operating subsidiary of
TIC's natural gas and oil operations. Mr. Peak has also served as chief
financial officer of Forest Oil from 1988 to 1989 and as an investment banker
with Howard Weil from 1989 to 1990. In 1991, Mr. Peak helped form Carbon Energy
International, a company that explored and developed coal bed methane reserves
in Washington and Oregon and the San Juan Basin of Colorado. Mr. Peak was an
officer in the U.S. Navy from 1968 to 1971. Mr. Peak received a BS degree in
physics from Ohio University and a MBA from Columbia University. He currently
serves as a director of NL Industries, Inc., a manufacturer and marketer of
titanium dioxide pigments and Cellxion, Inc., a privately owned manufacturing
and construction company serving the cellular telephone industry.
William H. Gibbons joined Contango in February 2000 and was appointed
treasurer in March 2000. Before joining Contango, he was treasurer of Packaged
Ice, Inc. from 1998 to 2000. From 1990 to 1998 and
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<PAGE> 13
from 1983 to 1986, he provided financial consulting services to domestic and
international oil companies, including a five-year assignment with Walter
International, Inc. Mr. Gibbons began his energy career with Houston Oil &
Minerals Corporation, where he served as treasurer from 1975 to 1981. He also
was VP-Finance for Guardian Oil Company from 1981 to 1983 and
Director-Acquisitions for Service Corporation International from 1986 to 1990.
Mr. Gibbons received a BA degree in business administration from Duke University
and a MBA in finance from Tulane University.
John B. Juneau has been a director of Contango since September 1999. Mr.
Juneau is a private investor and the sole manager of Juneau Exploration, a firm
that specializes in the generation and evaluation of natural gas and oil
prospects and is Contango's alliance partner. Prior to forming Juneau
Exploration, Mr. Juneau served as senior vice president of exploration for
Zilkha Energy Company from 1987 to 1998. His previous experience included three
years as staff petroleum engineer with Texas International Company, where his
principal responsibilities included reservoir engineering, as well as
acquisitions and evaluations. Prior to that, he was a production engineer with
ENSERCH in Oklahoma City. Mr. Juneau holds a BS degree in petroleum engineering
from Louisiana State University and is a registered professional engineer in the
State of Texas.
Joseph J. Romano has been a director of Contango since September 1999. He
has been employed by MSZ Investments, Inc. since 1998. In February 1989, Mr.
Romano joined Zilkha Energy Company, where he served as senior vice president
and chief financial officer until 1998. He served as the chief financial
officer, treasurer and controller of Texas International Company from 1986 to
1988 and as its treasurer and controller for 1982 to 1985. Prior to 1982, Mr.
Romano spent five years working in the Worldwide Energy Group of the First
National Bank of Chicago. He holds a BA degree in economics and political
science from the University of Wisconsin-Eau Claire and a MBA in finance from
the University of Northern Illinois.
Darrell W. Williams has been a director of Contango since September 1999.
He became president of Deutag Marketing and Technical Services in 1993, with
responsibility to develop new business with other companies having international
drilling departments in North America. In September 1996, Mr. Williams was
transferred to Germany and promoted to managing director of Deutag
International, which has responsibility for all drilling operations outside of
Europe. Before joining Deutag, Mr. Williams held senior executive positions with
Nabors Drilling from 1988 to 1993, Pool Company from 1985 to 1988, Baker Oil
Tools from 1980 to 1983 and SEDCO from 1970 to 1980. Mr. Williams graduated from
West Virginia University in 1964 with a degree in petroleum engineering. Mr.
Williams is past chairman of the Houston Chapter of International Association of
Drilling Contractors, a current member of the IADC executive committee and a
member of the Society of Petroleum Engineers.
Robert J. Zahradnik has been a director of Contango since July 2000. Since
March 2000, he has been the Operating Director of the Southern Ute Indian Tribe
Growth Fund. From 1989 through March 2000, he was Manager of Exploration and
Production for the Southern Ute Indian Tribe. Additionally, from 1992 through
March 2000, Mr. Zahradnik was President of Southern Ute Indian Tribe doing
business as Red Willow Production Company. He is a director of Red Cedar
Gathering Company. Mr. Zahradnik holds a BS degree in mechanical engineering
from Penn State University.
Directors of Contango serve as members of the board of directors until the
next annual stockholders meeting, until successors are elected and qualified or
until their earlier resignation or removal. Officers of Contango are elected by
the board of directors and hold office until their successors are chosen and
qualified, until their death or until they resign or have been removed from
office. All corporate officers serve at the discretion of the board of
directors. There are no family relationships between any of our directors or
executive officers.
CORPORATE OFFICES
We sublease our corporate offices at 3700 Buffalo Speedway, Suite 960,
Houston, Texas 77098. Our current sublease covers 2,850 square feet of space for
a monthly rental of $3,135 per month through October 31, 2000. We have entered
into a new lease covering this office space effective November 1, 2000 for a
monthly rental of $5,819 per month through October 2003.
9
<PAGE> 14
RISK FACTORS
In addition to the other information set forth elsewhere in this Form
10-KSB, you should carefully consider the following factors when evaluating
Contango. The risk factors listed below are not all inclusive.
Contango has a limited operating history in the natural gas and oil
industry. Contango entered the natural gas and oil exploration and production
business in July 1999, and as a result, we have a limited operating history. In
considering whether to invest in our common stock, you should consider the lack
of historical financial and operating information available on which to base
your evaluation of our future performance. Because we have fewer financial
resources than many companies in our industry, we may be at a disadvantage in
bidding for acreage, seismic and exploratory prospects and producing natural gas
and oil properties. You also should consider the inherent risks, exposures and
difficulties frequently encountered by other companies in the early stages of
development.
Our business plan, which has included a participation in an increasing
number of exploration prospects has required and will require substantial
capital expenditures. We cannot assure you that we will be able to raise
sufficient capital to fund our business plan. Further, we cannot assure you that
we will be able to develop an adequate inventory of drillable prospects or that
they will be successful when drilled. Even given exploration success, we cannot
assure you that we will be able to generate sufficient revenues to offset our
dry hole and general and administrative expenses. Thus, even if our business
plan is working, we ultimately may be unsuccessful and unable to continue
operations.
The company has limited current oil and gas production and limited proved
reserves, which means that its success is highly dependent on the success of its
exploration program. Our success is dependent on the success of our drilling
activities. Drilling activities are subject to many risks. Drilling for natural
gas and oil may involve unprofitable efforts, not only from dry wells but also
from wells that do not produce sufficient net revenues to return a profit after
drilling, operating and other costs. The cost of drilling, completing and
operating wells may be curtailed, delayed or canceled as a result of conditions,
mechanical problems, title problems, weather conditions, compliance with
governmental requirements and shortages or delays of equipment and services.
There can be no assurance that new wells we drill will be productive or that we
will recover all or any portion of our investment. Our drilling activities may
not be successful and if unsuccessful, such failure may have a material adverse
effect on our future results of operations or financial condition.
Our ability to successfully execute our business plan is dependent on our
ability to obtain additional financing. We incurred a loss of approximately $1.8
million during our first year in the natural gas and oil exploration industry,
and we may continue to incur losses. In addition, we expect we will need
continued financing to implement our business plan. If we cannot obtain
financing on acceptable terms, we will not be able to conduct our business as
proposed. Since adopting our business plan in July 1999, we have raised
approximately $17.9 million through the sale of common and preferred stock. Our
use of available and future funds is anticipated to include the following:
- Payment of our share of costs to drill exploratory wells and develop any
prospects that are successful and payments to acquire natural gas and oil
leases and seismic data. We expect to spend between $15 million and $25
million for the fiscal year ended June 30, 2001
- General and administrative costs that we estimate will approximate $1.0
million for the year ending June 30, 2001
- Acquisition of producing natural gas and oil properties
- Other entrepreneurial investments in the energy industry
We will require additional financing to fund our planned growth. The
issuance of any additional equity shares could result in a reduction in the
market price per share of our outstanding shares of common stock and would
reduce the proportionate ownership and voting power of such shares. Our ability
to raise additional capital will depend on the results of our operations and the
status of various capital and industry markets at the time we seek such capital.
Accordingly, we cannot be certain that additional financing will be available to
us
10
<PAGE> 15
on acceptable terms, if at all. In the event additional capital resources are
unavailable, we may be required to curtail our exploration and development
activities or be forced to sell certain of our assets in an untimely fashion or
on less than favorable terms.
There is only limited trading in our common stock on the Nasdaq
over-the-counter bulletin board, making our common stock more difficult to buy
and sell than the common stock of companies with more active trading
markets. Our common stock is not listed or quoted for trading on a national
securities market. There is only sporadic trading in our common stock on the
over-the-counter market, making our common stock more difficult to sell than the
common stock of companies with more active trading markets. Since July 1, 1999,
we have either sold or issued approximately 20.9 million shares of our common
stock. These shares have not been registered with the Securities and Exchange
Commission. We anticipate we will register approximately 10.6 million shares of
these unregistered shares prior to December 31, 2000 and another 6.5 million
shares have recently become eligible for sale under the Securities and Exchange
Commission Rule 144. The sale of such a substantial number of shares would
likely cause the market price of our common stock to fall. We can give no
assurance that these shares will not be sold or that a more active trading
market for our common stock will develop.
We depend on the services of our president and chief executive officer and
implementation of our business plan could be seriously impacted if we lost his
services. We depend heavily on the services of Kenneth R. Peak, our president
and chief executive officer. We do not maintain any "key person" life insurance
policy on or have an employment agreement with Mr. Peak. The loss of his
services could seriously impact or prevent us from implementing our business
plan.
We depend on the technical services provided by Juneau Exploration Company,
L.L.C. and could be seriously harmed if our alliance agreement were
terminated. Because we have only three employees, none of whom are geoscientists
or engineers, we are dependent upon alliance partners for the success of our
natural gas and oil exploration projects and expect to remain so for the
foreseeable future. In particular, effective September 1999, we entered into an
agreement with Juneau Exploration to source, screen, generate and present
exploration and acquisition opportunities to us. This agreement is cancelable by
Juneau Exploration with 180 days' notice. The loss of the services of Juneau
Exploration could have a material adverse effect on us and could prevent us from
implementing our business plan.
Our production is concentrated in a limited number of wells. At June 30,
2000, substantially all of our production and our proved reserves were
attributable to a small number of wells. The curtailment or loss of production
from any one of these wells could have a material adverse effect on our
financial position and results of operations.
No Assurance of Title. Contango's practice in acquiring exploration leases
or undivided interests in natural gas and oil leases is not to incur the expense
of retaining lawyers to examine the title to the mineral interest prior to
executing the lease. Instead, we rely upon the judgment of lease brokers or
landmen who perform the field work in examining records in the appropriate
governmental, county or parish clerk's office before leasing a specific mineral
interest. This practice is widely followed in the industry. Prior to the
drilling of an exploration well, however, the operator of the well will
typically obtain a preliminary title review of the drillsite lease and/or
spacing unit within which the proposed well is to be drilled to ensure there are
no obvious deficiencies in title to the well and, if there are deficiencies, to
cure those defects to the extent reasonably possible. It does happen, from time
to time that the examination made by the title lawyers reveals that the lease or
leases are invalid, having been purchased in error from a person who is not the
rightful owner of the mineral interest desired.
Competition in the natural gas and oil industry is intense, and we are
smaller and have a more limited operating history than most of our
competitors. We compete with a broad range of natural gas and oil companies in
our exploration and property acquisition activities. We also compete for the
equipment and labor required to operate and develop these properties. Most of
our competitors have substantially greater personnel and financial resources
than we do. These competitors may be able to pay more for exploratory prospects
and productive natural gas and oil properties. Further, they may be able to
define, evaluate, bid for and purchase a greater number of properties and
prospects than we can. Our ability to explore for natural gas and oil and to
11
<PAGE> 16
acquire additional properties in the future will depend on our ability to
evaluate and select suitable properties and to consummate transactions in this
highly competitive environment. In addition, most of our competitors have been
operating for a much longer time than we have and have demonstrated the ability
to operate through industry cycles. We cannot assure you that we will be able to
compete effectively with these companies or in such a highly competitive
environment.
Exploration is a high risk activity, and our participation in drilling
activities may not be successful. Our future success will largely depend on the
success of our exploration drilling program. Participation in drilling
activities involves numerous risks, including the risk that no commercially
productive oil or natural gas reservoirs will be discovered. The cost of
drilling, completing and operating wells is often uncertain, and drilling
operations may be curtailed, delayed or canceled as a result of a variety of
factors, including:
- Unexpected drilling conditions
- Blowouts, fires or explosions with resultant injury, death or
environmental damage
- Pressure or irregularities in formations
- Equipment failures or accidents
- Adverse weather conditions
- Compliance with governmental requirements and laws, present and future
- Shortages or delays in the availability of drilling rigs and the delivery
of equipment
Even when properly used and interpreted, 3-D seismic data and visualization
techniques are only tools used to only assist geoscientists in identifying
subsurface structures and hydrocarbon indicators. They do not allow the
interpreter to know conclusively if hydrocarbons are present or economically
producible. Poor results from our drilling activities would materially and
adversely affect our future cash flows and results of operation.
Our stockholders' investment will be exposed to risks of offshore
operations. We have participated in the drilling of wells located offshore in
the Gulf of Mexico and intend to participate in other offshore wells in the
future. Operations in this area are subject to many weather variances, including
tropical storms and hurricanes. Some of these disturbances can be severe enough
to cause substantial damage to wells and facilities and possibly interrupt
production. In accordance with customary industry practices, we will maintain
insurance against some, but not all, of these risks. Losses could occur for
uninsurable or uninsured risks or in amounts in excess of existing insurance
coverage. We cannot assure you that we will be able to maintain adequate
insurance in the future at rates we consider reasonable or that particular types
of coverage will be available. An event that is not fully covered by insurance
could have a material adverse effect on our financial position and results of
operations.
The calculation of proved reserves is only an estimate. Proved reserves are
estimated quantities of natural gas and oil that geological and engineering data
have demonstrated with reasonable certainty to be recoverable in future years
from known reservoirs under existing economic and operating conditions. The
process of estimating natural gas and oil reserves is complex and requires
interpretations of available technical data and various assumptions, including
assumptions relating to economic factors. Any significant inaccuracies in these
interpretations or assumptions could materially affect the estimated quantities
and present value of any reserve estimates. Preparing projections of production
rates requires analysis of available geological, geophysical, production and
engineering data. The extent and quality of this data can vary. The process
requires economic assumptions such as natural gas and oil prices, drilling and
operating expenses, capital expenditures, taxes and availability of funds.
Therefore, estimates of natural gas and oil reserves are inherently imprecise.
If we acquire or discover any natural gas and oil reserves, actual future
production, natural gas and oil prices, revenues, taxes, development
expenditures operating expenses and ultimate quantities of recoverable natural
gas and oil most likely will vary from any previous estimates. Any significant
variance could materially affect the estimated quantities and present value of
reserves we may report. In addition, we may adjust
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<PAGE> 17
previously reported estimates of proved reserves to reflect production history,
results of further exploration and development activities, prevailing natural
gas and oil prices and other factors, many of which are beyond our control.
Natural gas and oil prices fluctuate widely, and low prices could have a
material adverse effect on our operations. Our revenues, profitability and
future growth will depend largely on the prices we receive for our natural gas
and oil production. Prices received also will affect the amount of future cash
flow available for capital expenditures and will affect our ability to raise
additional capital. Lower prices may also affect the amount of natural gas and
oil that we can economically produce from reserves either discovered or
acquired.
Prices for natural gas and oil fluctuate widely. For example, natural gas
and oil prices declined significantly in 1998 and, for an extended period of
time, remained below prices obtained in previous years. Factors that can cause
price fluctuations include:
- The level of consumer product demand
- Weather conditions
- Domestic and foreign governmental regulations
- The price and availability of alternative fuels
- Political conditions in natural gas and oil producing regions
- The domestic and foreign supply of natural gas and oil
- The price of foreign imports
- Overall economic conditions
Shut-in wells, curtailed production and other production interruptions may
affect our ability to do business. Any portion of our future production may be
curtailed or shut-in for considerable periods of time due to any one or a
combination of the following factors:
- A lack of market demand
- Problems with a well
- Governmental regulations
- Pipeline and processing interruptions
- Production allocations
- Diminished pipeline capacity
- Natural disasters
We cannot assure you that if any of these events occur, it will not have a
material adverse effect on our activities.
The natural gas and oil business involves many operating risks that can
cause substantial losses. The natural gas and oil business involves a variety of
operating risks, including:
- Fires
- Explosions
- Blow-outs and surface cratering
- Uncontrollable flows of underground natural gas, oil or formation water
- Natural disasters
- Pipe and cement failures
13
<PAGE> 18
- Casing collapses
- Embedded oilfield drilling and service tools
- Abnormal pressure formations
- Environment hazards such as natural gas leaks, oil spills, pipeline
ruptures or discharges of toxic gases
If any of these events occur, we could incur substantial losses as a result
of:
- Injury or loss of life
- Severe damage to and destruction of property, natural resources or
equipment
- Pollution and other environmental damage
- Clean-up responsibilities
- Regulatory investigation and penalties
- Suspension of our operations
- Repairs necessary to resume operations
Offshore operations also are subject to a variety of operating risks
peculiar to the marine environment, such as capsizing, collisions and damage or
loss from hurricanes or other adverse weather conditions. These conditions can
cause substantial damage to facilities and interrupt production. As a result, we
could incur substantial liabilities that could reduce or eliminate the funds
available for exploration, development or leasehold acquisitions, or result in
loss of properties.
If we were to experience any of these problems, it could affect well bores,
platforms, gathering systems and processing facilities, any one of which could
adversely affect our ability to conduct operations. We do not carry interruption
of production insurance. For some risks, we may not obtain insurance if we
believe the cost of available insurance is excessive relative to the risks
presented. In addition, pollution and environmental risks generally are not
fully insurable. If a significant accident or other event occurs and is not
fully covered by insurance, it could adversely affect our operations. Moreover,
we cannot assure you that we will be able to maintain adequate insurance in the
future at rates we consider reasonable.
We are subject to complex laws and regulations, including environmental
regulations that can adversely affect the cost, manner or feasibility of doing
business. Our operations are subject to numerous laws and regulations governing
the operation and maintenance of our facilities and the discharge of materials
into the environment. Failure to comply with such rules and regulations could
result in substantial penalties and have an adverse effect on us. These laws and
regulations may:
- Require that we obtain permits before commencing drilling
- Restrict the substances that can be released into the environment in
connection with drilling and production activities
- Limit or prohibit drilling activities on protected areas, such as
wetlands or wilderness areas
- Require remedial measures to mitigate pollution from former operations,
such as plugging abandoned wells
Under these laws and regulations, we could be liable for personal injury
and clean-up costs and other environmental and property damages, as well as
administrative, civil and criminal penalties. We maintain limited insurance
coverage for sudden and accidental environmental damages. We do not believe that
insurance coverage for environmental damages that occur over time is available
at a reasonable cost. Moreover, we do not believe that insurance coverage for
the full potential liability that could be caused by sudden and accidental
environmental damages is available at a reasonable cost. Accordingly, we may be
subject to liability, or we may be required to cease production from properties
in the event of environmental
14
<PAGE> 19
damages. These laws and regulations have been changed frequently in the past. In
general, these changes have imposed more stringent requirements that increase
operating costs or require capital expenditures in order to remain in
compliance. It is also possible that unanticipated factual developments could
cause us to make environmental expenditures that are significantly different
from those we currently expect. Existing laws and regulations could be changed
and any such changes could have an adverse effect on our business.
We do not intend to pay dividends on our common stock. We have never
declared or paid a dividend on our common stock and do not expect to do so in
the foreseeable future. We currently intend to retain any future earnings for
funding growth, and, therefore, holders of the Company's common stock will not
be able to receive a return on their investment unless they sell their shares.
Anti-takeover provisions of our articles of incorporation, bylaws and
Nevada law could adversely effect a potential acquisition by third parties that
may ultimately be in the financial interests of our stockholders. Our articles
of incorporation, bylaws and the Nevada General Corporation Law contain
provisions that may discourage unsolicited takeover proposals. These provisions
could have the effect of inhibiting fluctuations in the market price of our
common stock that could result from actual or rumored takeover attempts,
preventing changes in our management or limiting the price that investors may be
willing to pay for shares of common stock. These provisions, among other things,
authorize the board of directors to designate the terms of and issue new series
of preferred stock, limit the personal liability of directors, require us to
indemnify directors and officers to the fullest extent permitted by applicable
law and impose restrictions on business combinations with some interested
parties.
ITEM 2. DESCRIPTION OF PROPERTIES
GENERAL
We are a development stage, independent energy company engaged in the
exploration and development of natural gas and oil in the United States. Our
development stage and entry into the natural gas and oil business began on July
1, 1999, when the previous board of directors approved a plan to hire new
management and enter the natural gas and oil exploration business. We have not
filed any reports of estimates of proved net oil or gas reserves with any
federal authority or agency since the beginning of the last fiscal year.
Our exploration efforts currently are focused onshore in the five Texas
counties of Wharton, Colorado, Ft. Bend, Jim Hogg and Brooks counties and in the
Gulf of Mexico, offshore Texas and Louisiana. During the fiscal year ended June
30, 2000, we completed four property acquisitions, commenced an onshore
exploration program and participated in the drilling of a successful well
offshore Louisiana.
PRODUCTION, PRICES AND OPERATING EXPENSES
The following table presents information regarding the production volumes,
average sales prices received and average production costs associated with our
sales of natural gas and oil for the period indicated. Contango had no natural
gas and oil production prior to the fiscal year ended June 30, 2000.
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
JUNE 30, 2000
-------------
<S> <C>
Production:
Natural gas (thousand cubic feet)......................... 28,094
Oil and condensate (barrels).............................. 6,384
Total (thousand cubic feet equivalent)............ 66,398
Average sales price:
Natural gas (per thousand cubic feet)..................... $ 4.16
Oil and condensate (per barrel)........................... 28.43
Total (per thousand cubic feet equivalent)........ 4.49
Expenses (per thousand cubic feet equivalent):
Lease operating expense................................... $ 1.28
Depreciation, depletion and amortization of oil and gas
properties............................................. 5.15
</TABLE>
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<PAGE> 20
At September 21, 2000, our total net production was approximately 6.2
million cubic feet of gas and 290 barrels of oil per day. This production level
will decline over time if we fail to make new discoveries or acquisitions. Our
production level also will be significantly reduced when Juneau Exploration's
25% after payout back in working interest occurs. This will result in an
approximate 18% reduction in our proportionately reduced net revenue interest.
Based on prices and anticipated production volumes as of September 2000, we
anticipate Juneau Exploration's 25% after payout working interest will occur in
our second or third fiscal quarter (October 2000 -- March 2001).
DEVELOPMENT, EXPLORATION AND ACQUISITION CAPITAL EXPENDITURES
The following table presents information regarding our net costs incurred
in the purchase of proved and unproved properties and in exploration and
development activities:
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
JUNE 30, 2000
-------------
<S> <C>
Property Acquisition Costs:
Unproved.................................................. $ 143,367
Proved.................................................... 418,531
Exploration costs........................................... 2,395,471
Development costs........................................... --
----------
Total costs....................................... $2,957,369
==========
</TABLE>
We anticipate that our capital expenditures for the fiscal year ending June
30, 2001 will be between $15 million to $25 million. This amount includes the $4
million investment in Republic Exploration made in August 2000 as well as an
additional $2.5 million investment that we intend to make prior to December 29,
2000.
DRILLING ACTIVITY
The following table shows our drilling activity for the fiscal year ended
June 30, 2000. In the table, "gross" refers to the total wells in which we have
a working interest and "net" refers to gross wells multiplied by our working
interest in such wells.
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
JUNE 30, 2000
--------------
GROSS NET
------ -----
<S> <C> <C>
Exploratory Wells:
Productive................................................ 2 0.86
Non-productive............................................ 6 0.84
-- ----
Total............................................. 8 1.70
== ====
Development Wells:
Productive................................................ -- --
Non-productive............................................ -- --
-- ----
Total............................................. -- --
== ====
</TABLE>
During the fiscal year ended June 30, 2000, we spent a total of
approximately $1.9 million drilling two productive wells, in which we had an
average working interest of approximately 43%, and we spent a total of
approximately $190,000 drilling six non-productive wells, in each of which we
had an average working interest of approximately 14%. At September 21, 2000, we
had two exploratory wells drilling, both onshore Texas.
16
<PAGE> 21
EXPLORATION AND DEVELOPMENT ACREAGE
Our principal natural gas and oil properties consist of producing and
non-producing natural gas and oil leases. The following table indicates our
interests in developed and undeveloped acreage as of June 30, 2000:
<TABLE>
<CAPTION>
DEVELOPED UNDEVELOPED
ACREAGE(1) ACREAGE(2) TOTAL ACREAGE
----------------- ----------------- -----------------
GROSS(3) NET(4) GROSS(3) NET(4) GROSS(3) NET(4)
-------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Onshore:
Texas.......................... 1,590 413 16,454 484 18,044 897
Offshore:
Louisiana Outer
Continental Shelf........... 1,250 356 -- -- 1,250 356
Offshore Texas................. -- -- 1,215 357 1,215 357
----- --- ------ --- ------ -----
Total.................. 2,840 769 17,669 841 20,509 1,610
===== === ====== === ====== =====
</TABLE>
---------------
(1) Developed acreage consists of acres spaced or assignable to productive
wells.
(2) Undeveloped acreage is considered to be those leased acres on which wells
have not been drilled or completed to a point that would permit the
production of commercial quantities of oil and gas, regardless of whether or
not such acreage contains proved reserves.
(3) Gross acres refer to the number of acres in which we own a working interest.
(4) Net acres represents the number of acres attributable to an owner's
proportionate working interest and/or royalty interest in a lease (e.g., a
50% working interest in a lease covering 320 acres is equivalent to 160 net
acres).
PRODUCTIVE WELLS
The following table sets forth the number of gross and net productive
natural gas and oil wells in which we owned an interest as of June 30, 2000:
<TABLE>
<CAPTION>
TOTAL PRODUCTIVE
WELLS(1)
-----------------
GROSS(2) NET(3)
-------- ------
<S> <C> <C>
Natural gas................................................. 15 0.70
Oil......................................................... 4 0.57
-- ----
Total............................................. 19 1.27
== ====
</TABLE>
---------------
(1) Productive wells are producing wells and wells capable of production.
(2) A gross well is a well in which we own an interest.
(3) The number of net wells is the sum of our fractional working interests owned
in gross wells. Under our agreement with Juneau Exploration, Juneau
Exploration will back in for a proportionately reduced 25% working interest
in each of the above wells after achieving a defined payout.
NATURAL GAS AND OIL RESERVES
The following table presents estimated net proved natural gas and oil
reserves and the net present value of the reserves at June 30, 2000 based on a
reserve report prepared by William M. Cobb & Associates, Inc. in accordance with
the rules and regulations of the Securities and Exchange Commission. The present
values, discounted at 10% per annum, of estimated future net cash flows before
income taxes shown in the table are not intended to represent the current market
value of the estimated natural gas and oil reserves we own. For
17
<PAGE> 22
further information concerning the present value of future net cash flows from
these proved reserves, see "Supplemental Oil and Gas Disclosures."
<TABLE>
<CAPTION>
PROVED RESERVES AS OF JUNE 30, 2000
--------------------------------------
DEVELOPED UNDEVELOPED TOTAL
---------- ----------- -----------
<S> <C> <C> <C>
Natural gas (thousand cubic feet)............... 1,205,811 1,480,482 2,686,293
Oil and condensate (barrels).................... 70,487 66,622 137,109
Total proved reserves (thousand cubic feet
equivalent)................................... 1,628,733 1,880,214 3,508,947
Pre-tax net present value ($)................... $6,009,225 $6,250,896 $12,260,121
</TABLE>
The process of estimating natural gas and oil reserves is complex. It
requires various assumptions relating to natural gas and oil prices, drilling
and operating expenses, capital expenditures, taxes and availability of funds,
projections of production rates and timing of development expenditures. Further,
our consultants must analyze available geological, geophysical, engineering and
production data, and the extent, quality and reliability of this data can vary.
Therefore, estimates of natural gas and oil reserves are inherently imprecise.
Actual future production, natural gas and oil prices, revenues, taxes,
development expenditures, operating expenses and quantities of recoverable
natural gas and oil reserves most likely will vary from estimates. Any
significant variance could materially affect the estimated quantities and
present value of reserves. In addition, estimates of proved reserves may be
adjusted to reflect production history, results of exploration and development,
prevailing natural gas and oil prices and other factors, many of which are
beyond our control.
The present value of future net cash flows does not represent the current
market value of our estimated natural gas and oil reserves. In accordance with
Securities and Exchange Commission requirements, we based the estimated
discounted future net cash flows from proved reserves on prices and costs on the
date of the estimate. Actual future prices and costs may differ materially from
those used in the present value estimate.
ITEM 3. LEGAL PROCEEDINGS
As of the date of this Form 10-KSB, we are not a party to any legal
proceedings, and we are not aware of any proceeding contemplated against us.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the quarter ended June 30, 2000, no matters were submitted to a vote
of security holders.
18
<PAGE> 23
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is traded over-the-counter on the Nasdaq over-the-counter
bulletin board under the symbol "BTUX." A very limited market exists for the
trading of our common stock. The table below sets forth the high and low bid
prices of our common stock for each quarter shown, as provided by the Nasdaq
Trading and Market Services Research Unit. Quotations reflect inter-dealer
prices, without retail mark-up, markdown or commissions and may not represent
actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
------- ------
<S> <C> <C>
Fiscal Year 1999
Quarter ended September 30, 1998.......................... $0.05 $0.05
Quarter ended December 31, 1998........................... 0.0625 0.05
Quarter ended March 31, 1999.............................. 0.25 0.04
Quarter ended June 30, 1999............................... 0.125 0.06
Fiscal Year 2000(1)
Quarter ended September 30, 1999.......................... $0.625 $0.125
Quarter ended December 31, 1999........................... 1.00 0.625
Quarter ended March 31, 2000.............................. 1.00 0.75
Quarter ended June 30, 2000............................... 1.125 0.75
</TABLE>
---------------
(1) The Company began its operations as a natural gas and oil exploration
company on July 1, 1999.
As of September 11, 2000, there were 22,920,415 shares of Contango common
stock outstanding, held by 221 holders of record.
We have never declared or paid any cash dividends on our common stock. We
currently intend to retain future earnings, if any, for operations and to
develop and expand our business. We do not anticipate paying any dividends on
our common stock in the foreseeable future. Any future determination with
respect to the payment of dividends on our common stock will be at the
discretion of our board of directors and will depend on, among other things, our
operating results, financial condition and capital requirements, the terms of
then-existing indebtedness, general business conditions and other factors our
board of directors deems relevant.
On September 28, 1999, Contango held its last year's annual meeting of
stockholders. At the meeting, the stockholders voted to amend the company's
articles of incorporation to change the name of the company from "MGPX Ventures,
Inc." to "Contango Oil & Gas Company." The stockholders also approved an
amendment to the articles increasing the number of authorized shares of common
stock from 12,375,000 to 50,000,000.
In August 1999, Contango completed a private placement of 6,460,000 shares
of its common stock for $0.10 per share and warrants to purchase 2,460,000
shares of common stock at $1.00 per share, raising gross proceeds of $670,600.
The securities were offered and sold to private investors pursuant to Regulation
D under the Securities Act of 1933, and there were no underwriting discounts,
commissions or finder's fees paid in connection with the placement.
Contango entered into an agreement with Juneau Exploration effective as of
September 1, 1999. Pursuant to the agreement, Juneau Exploration received
400,000 shares of common stock as part of its remuneration upon execution of the
agreement.
In October 1999, Contango completed a private placement of 3,780,000 shares
of its common stock for $0.30 per share, raising gross proceeds of $1,134,000.
The securities were offered and sold to private investors pursuant to Regulation
D under the Securities Act of 1933, and there were no underwriting discounts,
commissions or finder's fees paid in connection with the placement.
In December 1999, Contango completed a private placement of 1,443,999
shares of its common stock at a gross price of $0.75 per share (net price of
$0.72 per share after commissions) for net proceeds of
19
<PAGE> 24
$1,035,250. In addition to the $47,750 paid as cash commissions, options to
purchase 63,667 shares of Contango's common stock at $1.00 per share were
granted as commissions. All of the purchasers were "accredited investors" as
defined in Rule 501 of Regulation D of the Securities Act of 1933, and the
issuance of the securities was exempt from registration pursuant to Regulation
D.
Also in December 1999, Contango sold in a private placement 3,703,704
shares of its common stock and a warrant to purchase 370,370 shares of common
stock at $1.00 per share to Trust Company of the West for net proceeds after
discounts of $2,500,000, or $0.675 per share. As part of the securities purchase
agreement, as amended, between Contango and Trust Company of the West, Trust
Company of the West, at its option and so long as it holds at least 5% of
Contango's outstanding common shares, will be entitled to designate a person to
attend meetings of the board of directors for the purpose of observing such
meeting on behalf of Trust Company of the West. The issuance of the securities
to Trust Company of the West was exempt from registration under Section 4(2) of
the Securities Act, as it did not involve a public offering of securities. There
were no underwriting discounts, commissions or finder's fees paid in connection
with the placement.
During the quarter ended March 31, 2000 as part of a private placement,
Contango sold 95,333 shares of its common stock at a price of $0.75 per share
for total proceeds of $71,500. All of the purchasers were "accredited investors"
as defined in Rule 501 of Regulation D of the Securities Act of 1933, and the
issuance of the securities was exempt from registration under Rule 506 of
Regulation D. There were no underwriting discounts, commissions or finder's fees
paid in connection with the placement.
In June 2000, Contango sold to the Southern Ute Indian Tribe doing business
as the Southern Ute Indian Tribe Growth Fund 2,500,000 shares of its common
stock at a price of $1.00 per share for proceeds of $2,500,000 and granted a
90-day option to purchase an additional 2,500,000 shares of common stock at
$1.00 per share. The Southern Ute Indian Tribe was an "accredited investor," as
defined in Rule 501 of Regulation D of the Securities Act of 1933, and the
issuance of the securities was exempt from registration pursuant to Regulation
D. There were no underwriting discounts, commissions or finder's fees paid in
connection with the placement.
Recent Equity Sales. On August 24, 2000, Contango sold in a private
placement transaction 2,500 shares of its Series A senior convertible cumulative
preferred stock (the "Series A Preferred Stock") and a five-year warrant to
purchase 500,000 shares of common stock at an exercise price of $1.00 per share
to Trust Company of the West, as an investment manager and custodian on behalf
of a client, for net proceeds of $2,500,000. Series A Preferred Stock ranks
prior to the Company's common stock (and any other junior stock) with respect to
the payment of dividends or distributions and upon liquidation, dissolution,
winding-up or otherwise and is pari passu to the Company's Series B senior
convertible cumulative preferred stock. Holders of Series A Preferred Stock are
entitled to receive quarterly dividends at a dividend rate equal to 8% per annum
if paid in cash on a current quarterly basis or otherwise at a rate of 10% per
annum if not paid on a current quarterly basis or if paid in shares of Series A
Preferred Stock, in each case, computed on the basis of $1,000 per share.
Holders of Series A Preferred Stock may, at their discretion, elect to convert
such shares to shares of the Company's common stock at a conversion price of
$1.25 per share. In addition, upon the occurrence of certain events, the Company
may elect to convert all of the outstanding shares of Series A Preferred Stock
at a conversion price of $1.25 per share. As a result of the transaction, Trust
Company of the West, in its capacities as investment manager and custodian, owns
approximately 20% of the Company's diluted common shares. The issuance of the
securities to Trust Company of the West was exempt from registration under
Section 4(2) of the Securities Act, as it did not involve a public offering of
securities. There were no underwriting discounts, commissions or finder's fees
paid in connection with the placement.
On August 24, 2000, the Southern Ute Indian Tribe doing business as the
Southern Ute Indian Tribe Growth Fund exercised the option it previously
acquired to purchase 2,500,000 shares of common stock for net proceeds of
$2,500,000. In order to induce the Southern Ute Indian Tribe Growth Fund to
exercise such option, the Company issued to the Southern Ute Indian Tribe Growth
Fund a five-year warrant to purchase 250,000 shares of common stock at an
exercise price of $1.00 per share. As a result of the transaction, the Southern
Ute Indian Tribe Growth Fund owns approximately 16% of the Company's diluted
common shares.
20
<PAGE> 25
The issuance of securities to the Southern Ute Indian Tribe Growth Fund was
exempt from registration under Section 4(2) of the Securities Act, as it did not
involve a public offering of securities.
On August 24, 2000, as part of the formation of Republic Exploration, we
granted to each of Juneau Exploration and a private company in separate private
placement transactions a five-year warrant to purchase 125,000 shares of common
stock at an exercise price of $1.00 per share. The issuance of these two
five-year warrants was exempt from registration under Section 4(2) of the
Securities Act, as it did not involve a public offering of securities. There
were no underwriting discounts, commissions or finder's fees paid in connection
with the placements.
On September 27, 2000, Contango sold in a private placement transaction
5,000 shares of its Series B senior convertible cumulative preferred stock (the
"Series B Preferred Stock") to Aquila Energy Capital Corporation for net
proceeds of $5,000,000. Series B Preferred Stock ranks prior to the Company's
common stock (and any other junior stock) with respect to the payment of
dividends or distributions and upon liquidation, dissolution, winding-up or
otherwise and is pari passu to the Company's Series A Preferred Stock. Holders
of Series B Preferred Stock are entitled to receive quarterly dividends at a
dividend rate equal to 8% per annum if paid in cash on a current quarterly basis
or otherwise at a rate of 10% per annum if not paid on a current quarterly basis
or if paid in shares of Series B Preferred Stock, in each case, computed on the
basis of $1,000 per share. Holders of Series B Preferred Stock may, at their
discretion, elect to convert such shares to shares of the Company's common stock
at a conversion price of $2.20 per share. In addition, upon the occurrence of
certain events, the Company may elect to convert all of the outstanding shares
of Series B Preferred Stock at a conversion price of $2.20 per share. Jay D.
Brehmer, Director, Capital & Finance of Aquila Energy Capital, will join the
Board of Directors of Contango. As a result of the transaction, Aquila Energy
Capital owns approximately 7% of the Company's diluted common shares. The
issuance of the securities to Aquila Energy Capital Corporation was exempt from
registration under Section 4(2) of the Securities Act, as it did not involve a
public offering of securities. There were no underwriting discounts, commissions
or finder's fees paid in connection with the placement.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
We are a development stage, independent energy company engaged in the
exploration and production of natural gas and oil in the United States. Our
development stage and our entry into the natural gas and oil business began on
July 1, 1999, when the previous board of directors approved a plan to hire new
management and enter the natural gas and oil exploration business. We did not
produce any oil or natural gas prior to November 1999.
RESULTS OF OPERATIONS
The following is a discussion of the results of our operations for the
fiscal year ended June 30, 2000, compared to those for the fiscal year ended
June 30, 1999, and should be read in conjunction with the financial statements
and the accompanying notes and other information included elsewhere in this Form
10-KSB. The results of operations for the period ended June 30, 2000 are not
directly comparable to results for the period ended June 30, 1999, as we had no
operations from December 1997 until July 1999. In addition, we did not operate
as a natural gas and oil exploration and production company prior to July 1999.
As a result, our financial statements from the periods prior to June 30, 1999
are not correlative to our current financial statements that reflect us
operating as a natural gas and oil exploration and production company.
Natural Gas and Oil Sales. We recorded natural gas and oil sales of
approximately $298,000 for the fiscal year ended June 30, 2000. This primarily
was attributable to production from our discovery on Eugene Island 28 that
commenced in May 2000 and, to a lesser extent, to a discovery onshore Texas that
commenced production in late June 2000. We had no natural gas and oil production
for the fiscal year ended June 30, 1999.
Lease Operating Expenses. For the fiscal year ended June 30, 2000, we
recorded approximately $85,000 of lease operating expense including severance
tax. This was attributable to operating expenses associated with
21
<PAGE> 26
producing properties located on Eugene Island 28 and onshore Texas. There were
no lease operating expenses during the fiscal year ended June 30, 1999.
Exploration Costs. For the fiscal year ended June 30, 2000, we recorded
approximately $604,000 of exploration expense. This was attributable to
approximately $190,000 of dry hole costs associated with exploratory drilling
onshore Texas and approximately $414,000 of other geological and geophysical
costs. There were no exploration costs during the fiscal year ended June 30,
1999.
Depreciation, Depletion and Amortization. For the fiscal year ended June
30, 2000, we recorded approximately $345,000 of depreciation, depletion and
amortization. This primarily was attributable to depletion and amortization
related to our production both onshore Texas and the Eugene Island 28 well
offshore Louisiana and to depreciation of fixed assets, primarily office
equipment. There was no depreciation, depletion and amortization expense during
the fiscal year ended June 30, 1999.
Impairment of Proved Oil and Gas Properties. For the fiscal year ended June
30, 2000, we recorded impairments of approximately $548,000. This was
attributable to a write down of capitalized costs at Eugene Island 28 and our
Texas onshore properties.
General and Administrative Expense. General and administrative expense
increased approximately $656,000, from approximately $108,000 for the fiscal
year ended June 30, 1999 to approximately $764,000 for the fiscal year ended
June 30, 2000. This increase primarily was attributable to commencing operations
as a natural gas and oil exploration and production company in July 1999. Major
components of general and administrative expense for the fiscal year ended June
30, 2000, included $283,000 in salaries and benefits, $95,000 insurance, $98,000
legal, $95,000 accounting and audit, $98,000 rent and general office expenses
and $95,000 in other expenses.
Interest Expense. For the fiscal year ended June 30, 2000, we recorded
approximately $10,000 of interest expense. This expense represents the interest
cost of financing the premiums on our various insurance policies. There was no
interest expense during the fiscal year ended June 30, 1999.
Interest Income. Interest income increased approximately $118,000, from
approximately $23,000 for the fiscal year ended June 30, 1999 to approximately
$141,000 for the fiscal year ended June 30, 2000. Interest income was derived
from interest earned on our cash balances during the reporting periods. The
increase in interest income was due to the increase in cash balances resulting
from proceeds of various equity offerings completed during the fiscal year ended
June 30, 2000.
Gain on Sale of Assets. During the quarter ended March 31, 2000, we
recorded a gain of approximately $70,000 on the sale of natural gas and oil
properties. This primarily was associated with the sale of approximately 2,000
gross unproved leasehold acres in Shelby County in Texas. There was no such gain
for the fiscal year ended June 30, 1999.
CAPITAL RESOURCES AND LIQUIDITY
During the fiscal year ended June 30, 2000, we funded our activities with
the proceeds from private placements of our common stock. During this period, we
raised approximately $7.9 million in five separate private placements of our
common stock. In August 2000, we raised an additional $5.0 million in two
private placements of our common and preferred stock. On September 27, 2000, we
sold $5.0 million of our Series B Preferred Stock to Aquila Energy Capital
Corporation. These latest transactions bring the total equity we have raised
since July 1999 to approximately $17.9 million.
In addition to these equity transactions, we reported our first revenues
from operations during the quarter ended December 1999. For the fiscal year
ended June 30, 2000, we reported revenues from operations of $298,339. Based on
our business model that assumes continuing exploration success, we expect
operating cash flow to be a significant source of funds during the current
fiscal year. For the month of September 2000, we anticipate operating cash flow
of around $1.0 million. We currently have no bank borrowings or other debt.
Our primary cash outlays include exploration and development capital
expenditures and general and administrative expenses. At September 27, 2000, we
had approximately $7 million in cash that was available
22
<PAGE> 27
to fund exploration and development activities. Contango's focus will continue
to be on the generation and exploration of opportunities onshore Gulf coast and
offshore in the Gulf of Mexico. Current plans and prospect identification call
for the drilling of 15 to 20 onshore exploration wells and three to five
offshore exploration wells during the current fiscal year. We anticipate that
our capital expenditures for the fiscal year ending June 30, 2001 will be
between $15 million to $25 million, including a $6.5 million investment in
Republic Exploration, and that general and administrative expenses will be
approximately $1.0 million.
In August 2000, we invested $4.0 million in Republic Exploration for a 10%
equity interest and an option to acquire an additional 23.3% for $2.5 million.
We anticipate exercising this option before its December 29, 2000 expiration.
Republic Exploration has the license rights to existing and newly reprocessed
3-D seismic covering over 8,600 square miles of the shallow waters of the Gulf
of Mexico continental shelf. Republic Exploration was been formed to evaluate,
generate, acquire and explore prospects using this seismic data. We do not
expect cash distributions from Republic Exploration for the foreseeable future.
We believe that our cash on hand, together with our anticipated cash flow
from operations and proceeds from recent equity sales, will be adequate to
satisfy a significant portion of planned capital expenditures to drill
exploratory wells in our onshore Gulf coast and offshore Gulf of Mexico
exploration programs and satisfy our general corporate needs over the next
twelve months. We may continue to seek additional equity and bank financing to
fund our remaining $2.5 million investment in Republic Exploration, our
exploration program, our general and administrative costs and to take advantage
of other opportunities that may become available. The availability of such funds
will depend upon prevailing market conditions and other factors over which we
have no control, as well as our financial condition and results of operations.
We cannot assure you that we will have sufficient funds available to finance our
intended exploration and development programs or acquisitions or to successfully
execute our business plan. Our exploration drilling program will be curtailed if
we are unable to raise sufficient funds and, in any event, is contingent upon
continued exploration success.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplemental information required to be filed
under this item are presented on pages Page F-1 through F-15 of this Form
10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
The information regarding directors, executive officers, promoters and
control persons required under Item 9 of Form 10-KSB will be contained in
Contango's Definitive Proxy Statement for its 2000 Annual Meeting of
Stockholders (the "Proxy Statement") under the headings "Election of Directors,"
"Executive Compensation" and "Section 16(a) Beneficial Ownership Reporting
Compliance" and is incorporated herein by reference. The Proxy Statement will be
filed with the Securities and Exchange Commission pursuant to Regulation 14A of
the Exchange Act of 1934, as amended, not later than 120 days after June 30,
1999.
ITEM 10. EXECUTIVE COMPENSATION
The information required under Item 10 of Form 10-KSB will be contained in
the Proxy Statement under the heading "Executive Compensation" and is
incorporated herein by reference.
23
<PAGE> 28
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required under Item 11 of Form 10-KSB will be contained in
the Proxy Statement under the heading "Security Ownership of Certain Other
Beneficial Owners and Management" and is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required under Item 12 of Form 10-KSB will be contained in
the Proxy Statement under the heading "Certain Relationships and Related
Transactions" and "Executive Compensation" and is incorporated herein by
reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
The following is a list of exhibits filed as part of this Form 10-KSB.
Where so indicated by a footnote, exhibits, which were previously filed, are
incorporated herein by reference.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
3.1 -- Restated Articles of Incorporation of the Company, as
amended.(1)
3.2 -- Amended and Restated By Laws of the Company.(4)
3.3 -- Amendment to Articles of Incorporation of the Company.(4)
4.1 -- Facsimile of common stock certificate of the Company.(1)
4.2 -- Certificate of Designations, Preferences and Relative
Rights and Limitations for Series A Senior Convertible
Cumulative Preferred Stock(6)
10.1 -- Alcorn/MGPX Oil & Gas Lease Acquisition Agreement.(2)
10.2 -- Agreement, dated effective as of September 1, 1999,
between Contango Oil & Gas Company and Juneau
Exploration, L.L.C.(2)
10.3 -- Securities Purchase Agreement between Contango Oil & Gas
Company and Trust Company of the West, dated December 29,
1999.(3)
10.4 -- Warrant to Purchase Common Stock between Contango Oil &
Gas Company and Trust Company of the West, dated December
29, 1999.(3)
10.5 -- Co-Sale Agreement among Kenneth R. Peak, Contango Oil &
Gas Company and Trust Company of the West, dated December
29, 1999.(3)
10.6 -- Securities Purchase Agreement by and between Contango Oil
& Gas Company and the Southern Ute Indian Tribe doing
business as the Southern Ute Indian Tribe Growth Fund
dated June 8, 2000.(5)
10.7 -- Securities Purchase Agreement dated August 24, 2000 by
and between Contango Oil & Gas Company and Trust Company
of the West, in its capacities as Investment Manager and
Custodian.(6)
10.8 -- Securities Purchase Agreement dated August 24, 2000 by
and between Contango Oil & Gas Company and the Southern
Ute Indian Tribe doing business as the Southern Ute
Indian Tribe Growth Fund.(6)
10.9 -- Securities Purchase Agreement dated August 24, 2000 by
and between Contango Oil & Gas Company and Fairfield
Industries Incorporated.(6)
10.10 -- Securities Purchase Agreement dated August 24, 2000 by
and between Contango Oil & Gas Company and Juneau
Exploration Company, L.L.C.(6)
</TABLE>
24
<PAGE> 29
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.11+ -- Amendment dated August 14, 2000 to agreement between
Contango Oil & Gas Company and Juneau Exploration
Company, L.L.C. dated effective as of September 1,
2000.(2)
23.1+ -- Consent of William M. Cobb & Associates, Inc.
27.1+ -- Financial Data Schedule.
99.1 -- Press Release of Contango Oil & Gas Company dated August
24, 2000.(6)
</TABLE>
---------------
+ Filed herewith.
(1) Filed as an exhibit to the Company's Form 10-SB Registration Statement, as
filed with the Securities and Exchange Commission on October 16, 1998.
(2) Filed as an exhibit to the Company's Form 10-QSB for the quarter ended June
30, 1999, as filed with the Securities and Exchange Commission on November
11, 1999.
(3) Filed as an exhibit to the Company's Form 10-QSB for the quarter ended
December 31, 1999, as filed with the Securities and Exchange Commission on
February 14, 2000.
(4) Filed as an exhibit to the Company's Form 10-QSB for the quarter ended March
31, 2000, as filed with the Securities and Exchange Commission on May 10,
2000.
(5) Filed as an exhibit to the Company's report on Form 8-K, dated June 8, 2000,
as filed with the Securities and Exchange Commission on June 14, 2000.
(6) Filed as an exhibit to the Company's report on Form 8-K, dated August 24,
2000, as filed with the Securities and Exchange Commission on September 8,
2000.
(b) REPORTS ON FORM 8-K:
The Company filed a report on Form 8-K on June 14, 2000 reported that it
had sold in a private placement 2,500,000 shares of common stock at a price of
$1.00 per share to the Southern Ute Indian Tribe doing business as the Southern
Ute Indian Tribe Growth Fund for net proceeds of $2,500,000.
25
<PAGE> 30
CONTANGO OIL & GAS COMPANY
(A DEVELOPMENT STAGE ENTERPRISE)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-2
Balance Sheet, June 30, 2000................................ F-3
Statements of Operations for the Years Ended June 30, 2000
and 1999.................................................. F-4
Statements of Cash Flows for the Years Ended June 30, 2000
and 1999.................................................. F-5
Statements of Shareholders' Equity for the Years Ended June
30, 2000 and 1999......................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 31
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Contango Oil & Gas Company:
We have audited the accompanying balance sheet of Contango Oil & Gas
Company (a Nevada corporation in the development stage of operations as
described in Note 2) as of June 30, 2000, and the related statements of
operations, shareholders' equity and cash flows for each of the two years in the
period ended June 30, 2000 and for the period from inception of the development
stage (July 1, 1999) to June 30, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Contango Oil & Gas Company
as of June 30, 2000, and the results of its operations and its cash flows for
each of the two years in the period ended June 30, 2000 and for the period from
inception of the development stage (July 1, 1999) to June 30, 2000, in
conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Houston, Texas
September 27, 2000
F-2
<PAGE> 32
CONTANGO OIL & GAS COMPANY
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30, 2000
-------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 3,770,906
Accounts receivable, net.................................. 273,336
Prepaid insurance......................................... 65,785
Advances to operators and other........................... 1,056,817
-----------
Total current assets.............................. 5,166,844
-----------
PROPERTY, PLANT AND EQUIPMENT:
Natural gas and oil properties, successful efforts method
of accounting:
Proved properties...................................... 2,210,370
Unproved properties, not being amortized............... 61,919
Furniture and equipment................................... 22,806
Accumulated depreciation, depletion and amortization...... (893,060)
-----------
Total property, plant and equipment............... 1,402,035
-----------
OTHER ASSETS................................................ 73,625
-----------
TOTAL ASSETS...................................... $ 6,642,504
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 117,255
Accrued liabilities....................................... 119,865
-----------
Total current liabilities......................... 237,120
-----------
SHAREHOLDERS' EQUITY:
Common stock, $0.04 par value, 50,000,000 shares
authorized, 20,396,661 shares issued and outstanding at
June 30, 2000.......................................... 815,866
Additional paid-in capital................................ 9,252,204
Accumulated deficit....................................... (1,815,942)
Deficit accumulated during development stage.............. (1,846,744)
-----------
Total shareholders' equity........................ 6,405,384
-----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........ $ 6,642,504
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 33
CONTANGO OIL & GAS COMPANY
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
CUMULATIVE
TOTAL FROM
JULY 1, 1999
YEAR ENDED JUNE 30, (INCEPTION OF
----------------------- DEVELOPMENT
2000 1999 STAGE)
----------- --------- -------------
<S> <C> <C> <C>
REVENUES:
Natural gas and oil sales............................ $ 298,339 $ -- $ 298,339
EXPENSES:
Lease operating expense.............................. 85,254 -- 85,254
Exploration expense.................................. 604,136 -- 604,136
Depreciation, depletion and amortization............. 344,815 -- 344,815
Impairment of proved natural gas and oil
properties........................................ 548,245 -- 548,245
General and administrative expense................... 763,576 107,725 763,576
----------- --------- -----------
2,346,026 107,725 2,346,026
----------- --------- -----------
LOSS FROM OPERATIONS................................... (2,047,687) (107,725) (2,047,687)
Interest expense....................................... (10,341) -- (10,341)
Interest income........................................ 141,049 23,407 141,049
Gain on sale of assets................................. 70,235 -- 70,235
----------- --------- -----------
(1,846,744) (84,318) (1,846,744)
Provision for income tax............................... -- 800 --
----------- --------- -----------
NET LOSS............................................... (1,846,744) (85,118) (1,846,744)
Preferred stock dividends.............................. -- 30,226 --
----------- --------- -----------
NET LOSS ATTRIBUTABLE TO COMMON STOCK.................. $(1,846,744) $(115,344) $(1,846,744)
=========== ========= ===========
DEFICIT ACCUMULATED DURING DEVELOPMENT STAGE, BEGINNING
OF YEAR.............................................. -- -- --
----------- --------- -----------
DEFICIT ACCUMULATED DURING DEVELOPMENT STAGE, END OF
YEAR................................................. $(1,846,744) $ -- $(1,846,744)
=========== ========= ===========
BASIC AND DILUTED NET LOSS PER SHARE................... $ (0.19) $ (0.08) $ (0.19)
=========== ========= ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING............. 9,907,457 1,509,865 9,907,457
=========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 34
CONTANGO OIL & GAS COMPANY
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
CUMULATIVE
TOTAL FROM
JULY 1, 1999
YEAR ENDED JUNE 30, (INCEPTION OF
---------------------- DEVELOPMENT
2000 1999 STAGE)
----------- -------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.............................................. $(1,846,744) $(85,118) $(1,846,744)
Adjustments to reconcile net loss to net cash used in
operating activities:
Exploration expense.............................. 604,136 -- 604,136
Depreciation, depletion and amortization......... 344,815 -- 344,815
Impairment of proved natural gas and oil
properties.................................... 548,245 -- 548,245
Gain on sale of assets........................... (70,235) -- (70,235)
Changes in operating assets and liabilities:
Increase in accounts receivable............... (257,639) (15,697) (257,639)
(Increase) decrease in prepaid insurance...... (57,782) 8,002 (57,782)
Increase (decrease) in accounts payable....... 116,455 (100) 116,455
Increase in accrued liabilities............... 119,865 -- 119,865
----------- -------- -----------
Net cash used in operating activities....... (498,884) (92,913) (498,884)
----------- -------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Natural gas and oil exploration and development
expenditures....................................... (2,990,994) -- (2,990,994)
Additions to furniture and equipment.................. (22,806) -- (22,806)
Advances to operators................................. (1,056,817) -- (1,056,817)
Proceeds from sale of assets.......................... 151,179 -- 151,179
----------- -------- -----------
Net cash used in investing activities......... (3,919,438) -- (3,919,438)
----------- -------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock and warrants... 7,798,604 -- 7,798,604
Preferred stock dividends............................. (75,565) -- (75,565)
----------- -------- -----------
Net cash provided by financing activities..... 7,723,039 -- 7,723,039
----------- -------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.... 3,304,717 (92,913) 3,304,717
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR............ 466,189 559,102 466,189
----------- -------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR.................. $ 3,770,906 $466,189 $ 3,770,906
=========== ======== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 35
CONTANGO OIL & GAS COMPANY
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
FROM
JULY 1, 1999
PREFERRED STOCK COMMON STOCK ADDITIONAL (INCEPTION OF TOTAL
---------------- --------------------- PAID-IN ACCUMULATED DEVELOPMENT SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT STAGE) EQUITY
------- ------ ---------- -------- ---------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30,
1998.................... 16,792 $ 672 1,509,865 $ 60,395 $2,168,399 $(1,700,598) $ -- $ 528,868
Dividends on Series B
preferred stock......... -- -- -- -- -- (30,226) -- (30,226)
Net loss.................. -- -- -- -- -- (85,118) -- (85,118)
------- ----- ---------- -------- ---------- ----------- ----------- -----------
BALANCE AT JUNE 30,
1999.................... 16,792 672 1,509,865 60,395 2,168,399 (1,815,942) -- 413,524
Preferred stock
conversion.............. (16,792) (672) 503,760 20,150 (19,478) -- -- --
Sale of shares (8/99)..... -- -- 6,460,000 258,400 387,600 -- -- 646,000
Sale of warrants (8/99)... -- -- -- -- 24,600 -- -- 24,600
Sale of shares (9/99)..... -- -- 3,780,000 151,200 982,800 -- -- 1,134,000
Sale of shares (10/99).... -- -- 416,666 16,667 264,583 -- -- 281,250
Sale of shares (11/99).... -- -- 533,333 21,333 362,167 -- -- 383,500
Sale of shares (12/99).... -- -- 4,197,704 167,908 2,702,592 -- -- 2,870,500
Sale of shares (01/00).... -- -- 43,333 1,733 30,766 -- -- 32,499
Sale of shares (02/00).... -- -- 50,000 2,000 35,500 -- -- 37,500
Sale of shares (03/00).... -- -- 2,000 80 1,420 -- -- 1,500
Issuance of shares
(04/00)................. -- -- 400,000 16,000 24,000 -- -- 40,000
Sale of shares (06/00).... -- -- 2,500,000 100,000 2,400,000 -- -- 2,500,000
Offering expenses......... -- -- -- -- (112,745) -- -- (112,745)
Net loss.................. -- -- -- -- -- -- (1,846,744) (1,846,744)
------- ----- ---------- -------- ---------- ----------- ----------- -----------
BALANCE AT JUNE 30,
2000.................... -- $ -- 20,396,661 $815,866 $9,252,204 $(1,815,942) $(1,846,744) $ 6,405,384
======= ===== ========== ======== ========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 36
CONTANGO OIL & GAS COMPANY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
Contango Oil & Gas Company (the "Company" or "Contango") is a development
stage, independent natural gas and oil company engaged in the exploration,
development and acquisition of natural gas and oil properties in the United
States. Contango's entry into the natural gas and oil business began on July 1,
1999 (the inception date of the development stage).
Contango was incorporated as a Nevada corporation in August 1986 under the
name of Maple Enterprises, Inc. In 1988, Maple acquired and subsequently merged
into Warner Technologies, Inc., a private corporation. At the 1998 annual
stockholders' meeting, Warner stockholders approved an agreement to sell the
operating business and substantially all operating assets, effective as of
December 31, 1997. At that time, stockholders also voted to change the name of
the company from Warner Technologies, Inc. to MGPX Ventures, Inc.
As a result of the sale of assets, MGPX became a "shell" corporation with
no operations or business plan other than to seek to identify and complete a
transaction that would enhance stockholder value. After reviewing numerous
business opportunities, the board of directors unanimously approved a plan for
MGPX to hire new management and to enter the natural gas and oil business.
Accordingly, in July 1999, the board appointed Kenneth R. Peak as president,
chief executive officer, chief financial officer, secretary and director of the
company. At the annual stockholders' meeting held on September 28, 1999, the
stockholders voted to change the name of the company from MGPX Ventures, Inc. to
Contango Oil & Gas Company and elected a new board of directors, including
Kenneth R. Peak, president, chief executive officer and chairman of the board.
The Company also changed its trading symbol on the Nasdaq over-the-counter
bulletin board from "MGPX" to "BTUX".
2. DEVELOPMENT STAGE RISK AND LIQUIDITY
Development Stage Accounting. Contango is a development stage enterprise
engaged in the exploration for and production of natural gas and oil in the
United States. Since July 1, 1999, the Company has completed four property
acquisitions, entered into and commenced an onshore Texas exploration program
and participated in the drilling of two successful exploratory wells in the Gulf
of Mexico. For the fiscal year ended June 30, 2000, Contango reported revenues
from operations of $298,339 and incurred a net loss of $(1,846,744).
Development Stage Risk. Contango is subject to several categories of risk
associated with its development stage activities. Natural gas and oil
exploration and production is a speculative business and involves a high degree
of risk. Among the factors that have a direct bearing on the Company's prospects
are uncertainties inherent in estimating natural gas and oil reserves and future
hydrocarbon production and cash flows, particularly with respect to wells that
have not been fully tested and with wells having limited production histories;
access to additional capital; changes in the price of natural gas and oil;
availability and cost of services and equipment; and the presence of competitors
with greater financial resources and capacity.
Liquidity. Management believes that cash on hand, together with anticipated
cash flow from operations and the proceeds from recent equity sales (see Note
11), will be adequate to satisfy a significant portion of planned capital
expenditures to drill exploratory wells in the Company's onshore Gulf coast and
offshore Gulf of Mexico exploration programs and satisfy general corporate needs
over the next twelve months. The Company may continue to seek additional equity
and bank financing to fund the remaining $2.5 million investment in Republic
Exploration (see Note 11), the Company's exploration program, general and
administrative costs and to take advantage of other opportunities that may
become available. The availability of such funds will depend upon prevailing
market conditions and other factors over which the Company has no
F-7
<PAGE> 37
CONTANGO OIL & GAS COMPANY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
control, as well as the Company's financial condition and results of operations.
There can be no assurances that the Company will have sufficient funds available
to finance its intended exploration and development programs or acquisitions or
to successfully execute its business plan. The Company's exploration drilling
program will be curtailed if sufficient funds are unavailable and, in any event,
is contingent upon continued exploration success.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates. The preparation of financial statements in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates. Significant estimates with regard to these financial statements
include the estimate of proved natural gas and oil reserve quantities and the
related present value of estimated future net cash flows therefrom (see
"Supplemental Oil and Gas Disclosures").
Natural Gas and Oil Properties. The Company accounts for its natural gas
and oil exploration and production activities under the successful efforts
method of accounting.
Under the successful efforts method of accounting, all costs of acquiring
unproved natural gas and oil properties and drilling and equipping exploratory
wells are capitalized pending determination of whether the properties have
proved reserves. Unproved properties are periodically assessed for impairment of
value and a loss is recognized at the time of impairment. A loss is recognized
on proved properties expected to be sold in the event that carrying value
exceeds expected sales proceeds. If an exploratory well is determined to be non-
productive, the drilling and equipment costs of the well are expensed at that
time. All development drilling and equipment costs are capitalized. Geological
and geophysical costs and delay rentals are expensed as incurred.
Depreciation, depletion and amortization of the cost of proved natural gas
and oil properties is calculated on a property-by-property basis using the
unit-of-production method. Estimated future dismantlement, restoration and
abandonment costs, net of salvage values, are taken into account in the
calculation.
Periodically, or when circumstances indicate that an asset may be impaired,
the Company compares expected undiscounted future cash flows at a producing
field level to the unamortized capitalized cost of the asset. If the future
undiscounted cash flows, based on the Company's estimate of future natural gas
and oil prices and operating costs and anticipated production from proved
reserves are lower than the unamortized capitalized cost, the capitalized cost
is reduced to fair value. During the fiscal year ended June 30, 2000, the
Company recorded an impairment loss of $548,245 related to proved natural gas
and oil properties.
Revenue Recognition. Revenues from the sale of natural gas and oil produced
are recognized upon the passage of title, net of royalties. Revenues from
natural gas production are recorded using the sales method. When sales volumes
exceed the Company's entitled share, an overproduced imbalance occurs. To the
extent the overproduced imbalance exceeds the Company's share of the remaining
estimated proved natural gas reserves for a given property, the Company records
a liability. At June 30, 2000, the Company had no overproduced imbalances.
Cash Equivalents. Cash equivalents are considered to be all highly liquid
debt investments having an original maturity of three months or less. As of June
30, 2000, the Company had cash and cash equivalents of $3,770,906. Additionally,
the Company had advanced $1,056,817 to an operator to cover the costs to drill
and potentially complete additional wells in its Texas exploration program.
Net Loss per Share. Basic net loss per share is computed by dividing the
net loss attributable to common stock by the weighted-average number of common
shares outstanding. Diluted net loss per share is computed similar to basic net
loss per share except that the denominator is increased to include the number of
additional
F-8
<PAGE> 38
CONTANGO OIL & GAS COMPANY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
common shares that would have been outstanding if potential common shares had
been issued and if the additional common shares were dilutive. Diluted net loss
per share does not include potential common shares because such shares are
anti-dilutive for all periods presented.
Income Taxes. The Company follows the liability method of accounting for
income taxes under which deferred tax assets and liabilities are recognized for
the future tax consequences of (i) temporary differences between the tax bases
of assets and liabilities and their reported amounts in the financial statements
and (ii) operating loss and tax credit carryforwards for tax purposes. Deferred
tax assets are reduced by a valuation allowance when, based upon management's
estimates, it is more likely than not that a portion of the deferred tax assets
will not be realized in a future period.
Concentration of Credit Risk. Substantially all of the Company's accounts
receivable result from natural gas and oil sales or joint interest billings to
third parties in the natural gas and oil industry. This concentration of
customers and joint interest owners may impact the Company's overall credit risk
in that these entities may be similarly affected by changes in economic and
other conditions.
Stock-Based Compensation. The Company accounts for employee stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25. "Accounting for Stock Issued to Employees," and
related interpretations. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the fair value of the Company's common stock
at the date of the grant over the amount an employee must pay to acquire the
common stock. Non-employee stock-based compensation is accounted for using the
fair value method in accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation."
4. PROPERTY AND EQUIPMENT
At June 30, 2000, property and equipment consisted of the following:
<TABLE>
<S> <C>
Proved natural gas and oil properties....................... $2,210,370
Unproved natural gas and oil properties..................... 61,919
Other equipment............................................. 22,806
----------
Total property and equipment...................... 2,295,095
Accumulated depreciation, depletion and amortization........ (893,060)
----------
Property and equipment, net....................... $1,402,035
==========
</TABLE>
Unproved natural gas and oil properties consist of the cost of undeveloped
leaseholds and exploratory wells in progress, if any. Management reviews these
unproved costs periodically for impairment, with the impairment provision
included in exploration expense in the accompanying statements of operations.
Factors considered by management in its impairment assessment include drilling
results by the Company and other operators, the terms of natural gas and oil
leases not held by production and available funds for exploration and
development.
F-9
<PAGE> 39
CONTANGO OIL & GAS COMPANY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. INCOME TAXES
Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate rate of 35 percent to pretax
income as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------
2000 1999
--------- --------
<S> <C> <C>
Provision (benefit) at the statutory tax rate............... $(646,000) $(30,000)
Increase in valuation allowance............................. 646,000 30,000
--------- --------
Income tax provision.............................. $ -- $ --
========= ========
</TABLE>
The net deferred income tax asset is comprised of the following:
<TABLE>
<CAPTION>
JUNE 30,
-----------------------
2000 1999
----------- ---------
<S> <C> <C>
Deferred income tax asset:
Net operating loss carryforwards.......................... $ 1,309,000 $ 483,000
Valuation allowance....................................... (1,129,000) (483,000)
----------- ---------
180,000 --
Deferred income tax liabilities:
Temporary differences in natural gas and oil properties... (180,000) --
----------- ---------
Net deferred income tax asset..................... $ -- $ --
=========== =========
</TABLE>
Realization of the net deferred tax asset is dependent on the Company's
ability to generate taxable earnings in the future. The Company has net
operating loss carryforwards totaling approximately $3.7 million that begin
expiring in 2009.
6. COMMITMENTS AND CONTINGENCIES
Contango leases its office space and certain other equipment. As of June
30, 2000, minimum future lease payments are as follows:
<TABLE>
<S> <C>
Fiscal Year Ending June 30,
2001...................................................... $15,908
2002...................................................... 3,368
2003...................................................... 3,368
2004...................................................... 3,088
-------
Total............................................. $25,732
=======
</TABLE>
The Company has renewed its office lease beginning November 1, 2000 for a
period of 36 months at a monthly rental of $5,819. The amount incurred under
operating leases during the year ended June 30, 2000 was $23,000.
7. SHAREHOLDERS' EQUITY
Common Stock. Holders of the Company's common stock are entitled to one
vote per share on all matters to be voted on by shareholders and are entitled to
receive dividends, if any, as may be declared from time to time by the Board of
Directors of the Company. Upon any liquidation or dissolution of the Company,
F-10
<PAGE> 40
CONTANGO OIL & GAS COMPANY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the holders of common stock are entitled to receive a pro rata share of all of
the assets remaining available for distribution to shareholders after settlement
of all liabilities.
Preferred Stock. The Company's Board of Directors has authorized 125,000
shares of preferred stock, none of which were issued and outstanding as of June
30, 2000.
Stock Options. In September 1999, the Company established the Contango Oil
& Gas Company 1999 Incentive Stock Option Plan (the "Option Plan"). Under the
Option Plan, the exercise price of each option equals or is greater than the
market price of the Company's common stock on the date of grant, but in no event
less than $1.00 per share. Options generally expire after five years. The
vesting schedule varies, but vesting generally occurs either (a) immediately,
(b) one-third immediately and one-third on the next two anniversary dates of the
grant or (c) under a vesting schedule that is tied to the payout and rate of
return on specific projects for which the option was granted. The Company may
issue up to 5,000,000 shares of common stock under the Option Plan, of which
options to acquire 4,265,833 shares of common stock remained available for grant
at June 30, 2000.
In addition to grants made under the Option Plan, the Company granted
options during the year ended June 30, 2000 to purchase 2,780,000 shares of
common stock at prices between $1.00 and $1.50 per share. Included in this total
is a 90-day option granted to the Southern Ute Indian Tribe Growth Fund to
purchase 2,500,000 shares at $1.00 per share. This option was exercised on
August 24, 2000. Options granted outside the Option Plan generally expire after
five years. The vesting schedule varies, but vesting generally occurs either (a)
immediately or (b) one-third immediately and one-third on the next two
anniversary dates of the grant.
The Company has reserved shares of common stock for issuance upon the
exercise of options that have been granted. Grants made by the Company during
the year ended June 30, 2000 are summarized in the table below.
<TABLE>
<CAPTION>
WEIGHTED
SHARES AVERAGE
UNDER EXERCISE
OPTION PRICE
---------- --------
<S> <C> <C>
Outstanding, beginning of year.............................. 100,000 $1.00
Granted(1).................................................. 1,114,167 1.08
Cancelled................................................... (200,000) 1.00
----------
Outstanding, end of year.................................... 1,014,167 1.09
==========
Exercisable, end of year.................................... 707,500 1.12
==========
Available for grant, end of year............................ 4,265,833
==========
Weighted average fair value of options granted during the
year(2)................................................... $ 0.29
==========
</TABLE>
---------------
(1) Does not include the 90-day option granted to the Southern Ute Indian Tribe
Growth Fund to acquire 2,500,000 shares of Company's common stock that was
exercised August 24, 2000.
(2) The fair value of each option is estimated as of the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants: (i) risk-free interest rate of 6.35 percent;
(ii) expected lives of five years for the Option Plan and other options;
(iii) expected volatility of 50 percent; and (iv) expected dividend yield of
zero percent.
F-11
<PAGE> 41
CONTANGO OIL & GAS COMPANY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about options that are
outstanding at June 30, 2000:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------- ----------------------
NUMBER OF WEIGHTED NUMBER OF
SHARES AVERAGE SHARES WEIGHTED
UNDER REMAINING UNDER AVERAGE
OUTSTANDING CONTRACTUAL EXERCISABLE EXERCISE
EXERCISE PRICES OPTIONS LIFE OPTIONS PRICE
--------------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C>
$1.00(1).................................. 839,167 4.5 532,500 $1.00
1.50..................................... 175,000 4.7 175,000 1.50
--------- -------
1,014,167 707,500
========= =======
</TABLE>
---------------
(1) Does not include the 90-day option granted to the Southern Ute Indian Tribe
Growth Fund to acquire 2,500,000 shares of Company's common stock that was
exercised August 24, 2000.
The pro forma effect on the Company's earnings had it adopted the optional
recognition provisions of SFAS No. 123 for the year ended June 30, 2000 would be
to increase the reported net loss to $(1.87) million, or $(0.19) per share (both
basic and diluted).
8. WARRANTS
As of June 30, 2000, the Company had issued and outstanding warrants to
purchase 2,830,370 shares of the Company's common stock. The Company has
reserved an equal number of shares of common stock for issuance upon the
exercise of its outstanding warrants. Warrants issued by the Company do not
confer upon the holders thereof any voting or other rights of a stockholder of
the Company. The issuances and terms of the warrants are described below.
August 1999 Private Placement Warrants. In connection with the Company's
private placement of common stock in August 1999, the Company sold to certain
purchasers five-year warrants to purchase 2,460,000 shares of the Company's
common stock at $1.00 per share.
Trust Company of the West Warrant. In connection with the Trust Company of
the West's ("TCW") purchase of the Company's common stock in a private placement
in December 1999, the Company issued to TCW a five-year warrant to purchase
370,370 shares of the Company's common stock at $1.00 per share.
9. RELATED PARTY TRANSACTIONS
In August 1999, the Company completed a private placement of 6,460,000
shares of its common stock for $0.10 per share and warrants to purchase
2,460,000 shares of common stock, for gross proceeds of $670,600. Purchasers of
stock and warrants in the placement included Kenneth R. Peak, the Company's
chairman, president and chief executive officer, and John B. Juneau, Joseph
Romano and Darrell Williams, directors of the Company, who purchased an
aggregate of 2,060,000 shares of common stock and 2,060,000 warrants to purchase
common stock.
Effective September 1, 1999, the Company entered into an exploration
agreement with Juneau Exploration Company, L.L.C. Pursuant to the agreement,
Juneau Exploration received 400,000 shares of Contango common stock as part of
its remuneration upon execution of the agreement. As of June 30, 2000, Juneau
Exploration also had received stock options to purchase 400,000 shares of
Company common stock at $1.00 per share in connection with exploration successes
and acquisitions. In addition, Juneau Exploration receives a 2.5% proportionally
reduced overriding royalty on successful wells and a 25% proportionately reduced
back-in working interest after achieving a defined payout. On August 14, 2000,
the Company amended its agreement with Juneau Exploration whereby it will no
longer grant options to Juneau Exploration
F-12
<PAGE> 42
CONTANGO OIL & GAS COMPANY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
for exploration successes and acquisitions. Rather, the overriding royalty has
been increased to 3.3% on a well-by-well basis. Mr. Juneau is the sole manager
of Juneau Exploration and is a director of the Company.
In October 1999, the Company completed a private placement of, 3,780,000
shares of its common stock for $0.30 per share for total proceeds of $1,134,000.
Purchasers of stock in the placement included Kenneth R. Peak, the Company's
chairman, president and chief executive officer, and Darrell Williams, a
director of the Company, who purchased an aggregate of 812,000 shares of common
stock.
During the quarter ended March 31, 2000 as part of a private placement,
Contango sold 95,333 shares of its common stock at a price of $0.75 per share
for total proceeds of $71,500. Purchasers of stock included William H. Gibbons,
the Company's treasurer, who purchased an aggregate of 10,000 shares of common
stock.
Included in accounts receivable are receivables from a related party of
$250,078. Included in accounts payable are payables to a related party of
$5,752. Included in advances to operators is $40,251 advanced to a related
party.
10. NON-CASH INVESTING AND FINANCING ACTIVITIES
A summary of non-cash investing and financing activities is presented
below.
In August 1999, the Company converted each of its 16,792 shares of Series B
preferred stock into 30 fully paid and non-assessable shares of common stock.
In April 2000, the Company issued 400,000 shares of common stock to Juneau
Exploration in connection with an exploration agreement.
Supplemental disclosure of cash flow information for the year ended June
30, 2000:
<TABLE>
<S> <C>
Cash paid during the year for interest..................... $8,792
======
</TABLE>
11. SUBSEQUENT EVENTS (UNAUDITED)
On August 24, 2000, the Company sold $2.5 million of its 8% Series A senior
convertible cumulative preferred stock, convertible at $1.25 per share, to TCW,
as investment manager on behalf of a client. In addition, the Company granted a
five-year warrant to purchase 500,000 shares of Contango common stock at $1.00
per share.
On August 24, 2000, the Company sold to the Southern Ute Indian Tribe
Growth Fund 2,500,000 shares of its common stock for $2.5 million upon the early
exercise of an option to purchase additional shares. In addition, the Company
granted to the Southern Ute Indian Tribe Growth Fund a five-year warrant to
purchase 250,000 shares of Contango common stock at $1.00 per share.
In August 2000, the Company purchased a 10 percent interest in Republic
Exploration, L.L.C. for $4.0 million with the option to purchase another 23.3
percent interest for an additional $2.5 million. The option expires December 29,
2000 and, if exercised, will result in the Company paying a total of $6.5
million for a 33.3 percent interest in Republic Exploration. The other two
members of Republic Exploration are Juneau Exploration and another privately
held company. As part of this transaction, Contango granted five-year warrants
to each company to purchase 125,000 shares of Contango common stock at $1.00 per
share.
On September 27, 2000, the Company sold $5.0 million of its 8% Series B
senior convertible cumulative preferred stock, convertible at $2.20 per share,
to Aquila Energy Capital Corporation.
F-13
<PAGE> 43
CONTANGO OIL & GAS COMPANY
(A DEVELOPMENT STAGE ENTERPRISE)
SUPPLEMENTAL OIL AND GAS DISCLOSURES (UNAUDITED)
The following disclosures provide unaudited information required by SFAS
No. 69, "Disclosures About Oil and Gas Producing Activities." Prior to
Contango's fiscal year ended June 30, 2000, the Company had no natural gas and
oil operations nor did it have any proved reserves.
Costs Incurred. Costs incurred in natural gas and oil property acquisition,
exploration and development activities are summarized below:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30, 2000
-------------
<S> <C>
Property acquisition costs:
Unproved.................................................. $ 143,367
Proved.................................................... 418,531
Exploration costs........................................... 2,395,471
Development costs........................................... --
----------
Total costs incurred........................................ $2,957,369
==========
</TABLE>
Natural Gas and Oil Reserves. Proved reserves are estimated quantities of
natural gas and oil that geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions. Proved developed reserves are
proved reserves that reasonably can be expected to be recovered through existing
wells with existing equipment and operating methods.
Proved natural gas and oil reserve quantities at June 30, 2000, and the
related discounted future net cash flows before income taxes are based on
estimates prepared by William M. Cobb & Associates, Inc., independent petroleum
engineers. Such estimates have been prepared in accordance with guidelines
established by the Securities and Exchange Commission.
The Company's net ownership interests in estimated quantities of proved
natural gas and oil reserves and changes in net proved reserves as of June 30,
2000, all of which are located in the continental United States, are summarized
below:
<TABLE>
<CAPTION>
AS OF JUNE 30, 2000
--------------------
OIL AND NATURAL
CONDENSATE GAS
---------- -------
(MBBLS) (MMCF)
<S> <C> <C>
Proved developed and undeveloped reserves:
Beginning of year......................................... -- --
Purchase of natural gas and oil properties................ 7 17
Discoveries............................................... 136 2,697
Production................................................ (6) (28)
--- -----
End of year............................................... 137 2,686
=== =====
Proved developed reserves at end of year.................. 70 1,206
=== =====
</TABLE>
F-14
<PAGE> 44
CONTANGO OIL & GAS COMPANY
(A DEVELOPMENT STAGE ENTERPRISE)
SUPPLEMENTAL OIL AND GAS DISCLOSURES (UNAUDITED) -- (CONTINUED)
Standardized Measure. The standardized measure of discounted future net
cash flows relating to the Company's ownership interests in proved natural gas
and oil reserves as of year-end is shown below:
<TABLE>
<CAPTION>
JUNE 30, 2000
-------------
<S> <C>
Future cash flows........................................... $17,732,676
Future operating expenses................................... (1,969,450)
Future development costs.................................... (829,092)
Future income tax expenses.................................. (2,870,500)
-----------
Future net cash flows..................................... 12,063,634
10% annual discount for estimated timing of cash flows.... (1,837,000)
-----------
Standardized measure of discounted future net cash
flows.................................................. $10,226,634
===========
</TABLE>
Future cash flows are computed by applying fiscal year-end prices of
natural gas and oil to year-end quantities of proved natural gas and oil
reserves. Future operating expenses and development costs are computed primarily
by the Company's petroleum engineers by estimating the expenditures to be
incurred in developing and producing the Company's proved natural gas and oil
reserves at the end of the year, based on year end costs and assuming
continuation of existing economic conditions.
Future income taxes are based on year-end statutory rates, adjusted for tax
basis and applicable tax credits. A discount factor of 10 percent was used to
reflect the timing of future net cash flows. The standardized measure of
discounted future net cash flows is not intended to represent the replacement
cost or fair value of the Company's natural gas and oil properties. An estimate
of fair value would also take into account, among other things, the recovery of
reserves not presently classified as proved, anticipated future changes in
prices and costs, and a discount factor more representative of the time value of
money and the risks inherent in reserve estimates of natural gas and oil
producing operations.
Change in Standardized Measure. Changes in the standardized measure of
future net cash flows relating to proved natural gas and oil reserves are
summarized below:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30, 2000
-------------
<S> <C>
Changes due to current year operations:
Sales of natural gas and oil, net of natural gas and oil
operating expenses..................................... $ (213,085)
Extensions and discoveries................................ 12,287,000
Purchases of natural gas and oil properties............... 186,205
Changes due to revisions in standardized variables:
Income taxes.............................................. (2,033,486)
-----------
Net change.................................................. 10,226,634
Beginning of year........................................... --
-----------
End of year................................................. $10,226,634
===========
</TABLE>
F-15
<PAGE> 45
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CONTANGO OIL & GAS COMPANY
/s/ KENNETH R. PEAK
------------------------------------
Kenneth R. Peak
President, Chief Executive Officer,
Chief
Financial Officer, Secretary
(principal
executive, financial and accounting
officer)
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ KENNETH R. PEAK Chairman of the Board September 27, 2000
-----------------------------------------------------
Kenneth R. Peak
/s/ JOHN B. JUNEAU Director September 27, 2000
-----------------------------------------------------
John B. Juneau
/s/ JOSEPH J. ROMANO Director September 27, 2000
-----------------------------------------------------
Joseph J. Romano
/s/ DARRELL W. WILLIAMS Director September 27, 2000
-----------------------------------------------------
Darrell W. Williams
/s/ ROBERT J. ZAHRADNIK Director September 27, 2000
-----------------------------------------------------
Robert J. Zahradnik
</TABLE>
<PAGE> 46
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
3.1 -- Restated Articles of Incorporation of the Company, as
amended.(1)
3.2 -- Amended and Restated By Laws of the Company.(4)
3.3 -- Amendment to Articles of Incorporation of the Company.(4)
4.1 -- Facsimile of common stock certificate of the Company.(1)
4.2 -- Certificate of Designations, Preferences and Relative
Rights and Limitations for Series A Senior Convertible
Cumulative Preferred Stock(6)
10.1 -- Alcorn/MGPX Oil & Gas Lease Acquisition Agreement.(2)
10.2 -- Agreement, dated effective as of September 1, 1999,
between Contango Oil & Gas Company and Juneau
Exploration, L.L.C.(2)
10.3 -- Securities Purchase Agreement between Contango Oil & Gas
Company and Trust Company of the West, dated December 29,
1999.(3)
10.4 -- Warrant to Purchase Common Stock between Contango Oil &
Gas Company and Trust Company of the West, dated December
29, 1999.(3)
10.5 -- Co-Sale Agreement among Kenneth R. Peak, Contango Oil &
Gas Company and Trust Company of the West, dated December
29, 1999.(3)
10.6 -- Securities Purchase Agreement by and between Contango Oil
& Gas Company and the Southern Ute Indian Tribe doing
business as the Southern Ute Indian Tribe Growth Fund
dated June 8, 2000.(5)
10.7 -- Securities Purchase Agreement dated August 24, 2000 by
and between Contango Oil & Gas Company and Trust Company
of the West, in its capacities as Investment Manager and
Custodian.(6)
10.8 -- Securities Purchase Agreement dated August 24, 2000 by
and between Contango Oil & Gas Company and the Southern
Ute Indian Tribe doing business as the Southern Ute
Indian Tribe Growth Fund.(6)
10.9 -- Securities Purchase Agreement dated August 24, 2000 by
and between Contango Oil & Gas Company and Fairfield
Industries Incorporated.(6)
10.10 -- Securities Purchase Agreement dated August 24, 2000 by
and between Contango Oil & Gas Company and Juneau
Exploration Company, L.L.C.(6)
10.11 -- Amendment dated August 14, 2000 to agreement between
Contango Oil & Gas Company and Juneau Exploration
Company, L.L.C. dated effective as of September 1,
2000.(2)
23.1 -- Consent of William M. Cobb & Associates, Inc.
27.1 -- Financial Data Schedule.
99.1 -- Press Release of Contango Oil & Gas Company dated August
24, 2000.(6)
</TABLE>
